Category: China & HK

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ASX selling pressure

The ASX 200 is falling sharply despite strong performance in China. Breach of the rising trendline (around 5400) would indicate a correction to test the primary trendline around 5000. The support level is indistinct because of frequent back-filling and could establish anywhere between 5300 and 5450. Reversal of 13-week Twiggs Money Flow below zero after a bearish divergence warns of strong selling pressure. Respect of support at the secondary trendline is therefore unlikely.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

The ASX 200 VIX is rising, but low levels remain typical of a bull market.

ASX 200

Dow Jones Shanghai Index continues to make strong gains since commencing a primary up-trend, but expect further resistance between 310 and 315, at the 2013 high.

DJSH

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Europe uneasy

Weekly highlights:

  • The Dollar is strengthening
  • Treasury yields (long-term) are rising
  • Gold and crude oil are falling
  • European stocks are bearish
  • US stocks remain bullish

The tenuous ceasefire in Eastern Ukraine appears to be holding, but Europe faces another challenge this week, with a Scottish referendum on independence. Predictions of financial mayhem in the event of a “Yes” vote are, I feel, exaggerated in an attempt to influence the outcome. The official position of the UK government is:

“If a majority of those who vote want Scotland to be independent then Scotland would become an independent country after a process of negotiations.”

The “process of negotiations” is likely to be comprehensive and would resolve most outstanding uncertainties in an orderly fashion. There has been much debate over economic issues, but it is no coincidence that the referendum is being held in the same year as the 700th anniversary of the Battle of Bannockburn, when Scots under Robert the Bruce defeated an English army led by Edward II to regain their independence.

Stock markets

Dow Jones Euro Stoxx 50 remains hesitant, retreating from resistance at 3300. Consolidation above 3200 would be a bullish sign, while breach of 3100 would threaten primary support at 3000. Another 13-week Twiggs Money Flow trough above zero would indicate buying pressure, but reversal below zero would warn of a down-trend.

* Target calculation: 3300 + ( 3300 – 3000 ) = 3600

The S&P 500 is edging lower and follow-through below 1980 would indicate another correction. Respect of support at 1950, however, would suggest that the up-trend is intact. Sideways movement on 21-day Twiggs Money Flow, reflects further consolidation.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) below 20 is typical of a bull market.

S&P 500 VIX

China’s Shanghai Composite Index breakout above 2250 signals a primary up-trend. The monthly chart, however, reflects further resistance at 2450/2500*. Rising 13-week Twiggs Money Flow indicates accelerating buying pressure. Reversal below 2250 is most unlikely, but would suggest further consolidation between 2000 and 2250.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

The ASX 200 broke support at 5540/5560, warning of a correction. Bearish divergence on 21-day Twiggs Money Flow indicates medium-term selling pressure. Respect of support at 5440/5460 would indicate that the primary up-trend is intact, while a fall below 5360 would warn of a down-trend.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

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Asian stocks pause

Hong Kong’s Hang Seng Index continues to encounter resistance at 25000, but respect of support at 24000 and rising 13-week Twiggs Money Flow indicate sustained buying pressure. Breakout would offer a target of 27000*.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index is consolidating after breaking resistance at 2250. Rising 13-week Twiggs Money Flow reflects medium-term buying pressure. The primary trend is up, but expect retracement to test the new support level at 2250.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex has reached its long-term target of 27000*, shown here on a quarterly chart. Bearish divergence on 13-week Twiggs Money Flow continues to warn of long-term selling pressure. Respect of the zero line appears likely and would suggest a further advance, but a fall below zero would warn of a decline to test the rising trendline.

Sensex

* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Japan’s Nikkei 225 index continues its advance towards 16300. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 15500 is unlikely, but would warn of a test of 14800.

Nikkei 225

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European ceasefire

Neil MacFarquhar reports in The New York Times:

After five months of intensifying combat that threatened to rip Ukraine apart and to reignite the Cold War, the Ukrainian government and separatist forces signed a cease-fire agreement on Friday that analysts considered highly tenuous in a country that remains a tinderbox…..

The agreement resembles, almost verbatim, a proposal for a truce issued by President Petro O. Poroshenko in June.

It includes amnesty for those who disarm and who did not commit serious crimes, and the exchange of all prisoners. Militias will be disbanded, and a 10-kilometer buffer zone — about six miles — will be established along the Russian-Ukrainian border. The area will be subject to joint patrols. The separatists have agreed to leave the administrative buildings they control and to allow broadcasts from Ukraine to resume on local television….

There appears plenty of skepticism as to whether the ceasefire will hold… and whether Russian forces will withdraw, but markets welcomed the announcement.

Germany’s DAX is testing resistance at 9700/9800. Breakout would indicate a fresh advance, while follow-through above 10000 would confirm a target of 11000. Recovery of 13-week Twiggs Money Flow above zero suggests selling pressure is easing. Retreat below 9250, however, would warn of another test of primary support at 9000.

DAX

* Target calculation: 10000 + ( 10000 – 9000 ) = 11000

The S&P 500 rallied above 2000. Follow-through above 2010 would confirm an advance to 2100*. Sideways movement on 21-day Twiggs Money Flow, however, suggests further consolidation. Reversal below 1990 is unlikely, but would warn of another correction.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains low, typical of a bull market.

S&P 500 VIX

Shanghai Composite Index, responding to PBOC stimulus, broke resistance at 2250 to signal a primary up-trend. Rising 13-week Twiggs Money Flow indicates accelerating buying pressure. Target for the advance is 2500*. Reversal below 2250 is unlikely, but would suggest further consolidation between 2000 and 2250.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

The ASX 200 broke short-term support at 5620, but with both US and Chinese markets entering a bull phase retracement is likely to be short-lived. Breakout above 5680 would confirm an advance to 5850*. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure, but a trough above zero would indicate that buyers are back in control. Reversal below 5540 is unlikely, but would warn of a test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

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Asian tiger leap

Hong Kong’s Hang Seng Index is retracing to test support at 24000. Respect is likely and recovery above 25000 would confirm a primary advance to 27000*. Rising 13-week Twiggs Money Flow signals buying pressure. Failure of support at 24000 is unlikely, but would warn of a correction.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index broke resistance at 2250, confirming a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Expect retracement to test the new support level.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex is testing resistance at the target of 27000*. Completion of a 13-week Twiggs Money Flow trough above zero indicates that buyers have taken control. Expect retracement to test the new support level at 26000. Penetration of the secondary trendline is unlikely, but would warn of a correction to the primary trendline.

Sensex

* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Japan’s Nikkei 225 index followed through above 15500, suggesting a test of resistance at 16000/16300. Declining 13-week Twiggs Money Flow continues to warn of medium-term selling pressure, but respect of the zero line would signal that buyers have taken control. Reversal below 15500 is unlikely, but would warn of a test of 14800.

Nikkei 225

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War in Europe

Vladimir Putin has escalated the conflict in Eastern Ukraine with new incursions of tanks backed with artillery, anti-aircraft missile systems and up to 15,000 Russian troops. Intent on seizing as much territory as possible, he is banking on the US/European coalition responding with another slap on the wrist. Each weak response has only made Putin bolder. But where he may miscalculate is that the coalition is aware that its “stick-and-carrot” policy has failed and will be looking for a new approach.

Willingness of the Europeans to endure immediate economic pain in the belief that this will avert a long-term calamity is yet to be tested. Success will depend on France, Spain and Italy’s support for their Northern and Central European neighbours, who face a more immediate threat.

A significant step-up in sanctions is likely and the initial response from European markets will be negative. Sanctions are a two-edged sword and likely to hurt Europe almost as much as they do Russia. But NATO rearmament in the medium-term would somewhat offset the initial cost. Never underestimate the stimulus effect of war on local industry — provided the war is fought outside one’s borders

Germany’s DAX is running into stiff resistance as it approaches 9750. And 13-week Twiggs Money Flow below zero warns of selling pressure, threatening a reversal. Retreat below 9250 would strengthen the signal and failure of support at 8900/9000 would confirm a primary down-trend.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

Dow Jones Euro Stoxx 50 reversal below 3100 and 13-week Twiggs Money Flow below zero would add further weight to the (bear) signal.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

The S&P 500, unfazed by recent developments in Europe, broke resistance at 2000 to signal an advance to 2100*. A 21-Day Twiggs Money Flow trough above zero indicates rising (medium-term) buying pressure. Reversal below 1990 is unlikely, but would warn of another correction.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX), shown here on a ten-year chart, indicates low risk typical of a bull market.

S&P 500 VIX

Shanghai Composite Index, responding to PBOC stimulus, is testing resistance at 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout would confirm a primary up-trend, signaling an advance to 2500*. Respect of resistance is less likely, but would suggest further consolidation.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

The ASX 200 is testing resistance at 5650. Continued strength in US and Chinese stocks would improve the chance of an ASX 200 breakout, suggesting an advance to 5850*. Bearish divergence on 13-week Twiggs Money Flow — shown here on a monthly chart — continues to warn of long-term selling pressure. But failure to cross below zero would negate this and completion of another trough above zero would indicate that buyers are back in control. Reversal below 5450 is unlikely, but would warn of a test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

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Crude and bulk commodities fall but nickel, aluminum rally

Crude oil prices are falling. Nymex Light Crude is testing primary support at $92/barrel and Brent Crude at $99/barrel. Breach of support would signal a down-trend.

Nymex WTI Crude

Commodity prices remain low, in line with sluggish world trade.

But that does not tell the full story.

Bulk commodity prices are falling as Chinese construction slows…

Bulk Commodities

…While copper prices recovered above 7000/tonne. Penetration of the declining trendline suggests that the down-trend is slowing. Breakout above 7400 would strengthen the signal.

Copper

And aluminum alloy…

Alumina

…and nickel show surprising strength, signaling an up-trend.

Nickel

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Hang Seng leads Asian recovery

Hong Kong’s Hang Seng Index broke its 2010 high at 25000, confirming a primary advance and offering a target of 27000*. Rising 13-week Twiggs Money Flow signals continued buying pressure. Reversal below 24000 is unlikely, but would warn of a correction to the rising trendline.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index continues to test resistance at 2250. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2150 is unlikely, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex is retracing to test support at 26000. Respect would confirm the target of 27000*. Declining 13-week Twiggs Money Flow continues to warn of selling pressure. Respect of the zero line would indicate that buyers have taken control, while a fall below zero would warn of a correction. Penetration of the secondary trendline is unlikely, but would indicate a correction to the primary trendline.

Sensex

* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Japan’s Nikkei 225 index recovered above 15500, suggesting continuation of the advance. Expect resistance between 16000 and 16300. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure, but respect of the zero line would indicate that buyers have taken control. Reversal below 14800 is unlikely, but would warn of a test of primary support at 14000.

Nikkei 225

* Target calculation: 16000 + ( 16000 – 14000 ) = 18000

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Putin antics fail to impress markets

For all his macho posturing, Vladimir Putin has demonstrated an inability to move financial markets with his antics in Eastern Ukraine. His latest incursion towards Luhansk, with white-painted military trucks bearing aid to the rebel-held city, unchecked by the Red Cross, passed barely noticed. Instead markets are intently focused on nuances from a 68-year old Jewish mum at Jackson Hole, who also happens to chair the Federal Reserve.

I would have loved to call Janet Yellen a “grandmother”, but son Robert Akerlof — himself a PhD in Economics — does not claim any offspring on his CV. The apple doesn’t fall far from the tree. Husband, George Akerlof, is a Nobel prize-winning economist and professor emeritus at University of California, Berkeley.

The image below highlights the differences between the Fed and the ECB:

The Fed’s more stimulatory approach has paid dividends in terms of economic growth and employment while inflation expectations remain muted. The inflation breakeven rate — 10-year Treasury yield minus the yield on equivalent inflation-indexed securities — continues to range between 2.0% and 2.50%.

Inflation breakeven rate

The ECB’s more austere approach, on the other hand, has caused a world of pain.

Market update

  • S&P 500 tests 2000.
  • VIX continues to indicate a bull market.
  • DAX hesitant rally.
  • China bullish.
  • ASX 200 faces strong resistance.

The S&P 500 hesitated after making a new high on Thursday, but there was no dramatic fall in response to news from Eastern Ukraine. Expect retracement towards 1950, followed by another test of 2000. 21-Day Twiggs Money Flow is likely to re-test the zero line, but respect would indicate strong buying pressure. Breach of support at 1900, warning of a reversal, remains unlikely.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

Declining CBOE Volatility Index (VIX) indicates low risk, typical of a bull market.

S&P 500 VIX

Germany’s DAX rallied above 9300 on the weekly chart, but 13-week Twiggs Money Flow warns of continued selling pressure. Reversal below support at 8900/9000 would warn of a primary down-trend.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

Shanghai Composite Index is testing resistance at 2250. Breakout would confirm a primary up-trend, signaling an advance to 2500*. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Respect of resistance, however, would suggest further consolidation.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

Tall wicks on ASX 200 daily candles indicate strong resistance at 5650. Respect would suggest retracement to 5550, while follow-through would be a strong bull signal, suggesting an advance to 5850*. Another 21-day Twiggs Money Flow trough above zero would indicate long-term buying pressure. Reversal below 5450 is unlikely, but would warn of a test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

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China leads Asian recovery

Hong Kong’s Hang Seng Index is testing its 2010 high at 25000. Breakout would confirm a primary advance, with a target of 27000*. A 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Reversal below 24000 is unlikely, but would warn of a correction to the rising trendline.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index is testing resistance at 2250. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2150 is unlikely, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex recovered above 26000, offering a target of 27000*. Declining 13-week Twiggs Money Flow continues to warn of selling pressure, but respect of the zero line and recovery above 10% would indicate that buyers have taken control. Reversal below the secondary trendline is unlikely, but would indicate a correction to the primary trendline.

Sensex

* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Dow Jones Japan Index is testing resistance at 86/87 on the weekly chart. Breakout would suggest a primary advance. Reversal below 82 is unlikely, but would warn of a test of primary support at 74.

Dow Jones Japan Index

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