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The ASX 200 is rallying strongly, led by US and Chinese markets. Breakout above 5650 would indicate an advance to 5750. Completion of another 13-week Twiggs Money Flow trough above zero would strengthen the signal. Reversal below the rising trendline is unlikely, but would warn of a test of primary support at 5050.
* Target calculation: 5550 + ( 5550 – 5350 ) = 5750
Retreat of the ASX 200 VIX below 12 indicates low risk typical of a bull market.
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.
* 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.
* 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.
* 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.
Germany’s DAX respected primary support at 9000, but the subsequent rally met resistance at 9250/9300. Failure to break through would warn of another test of primary support. 21-Day Twiggs Money Flow below zero indicates selling pressure. Breach of 8900 would signal a primary down-trend, while recovery above 9300 would suggest a rally to 9750.
* Target calculation: 9750 + ( 9750 – 9000 ) = 10500
The Footsie is testing resistance at 6750. Breakout would indicate a rally to 6900. 13-Week Twiggs Money Flow oscillating above zero indicates a healthy up-trend. Reversal below 6650 is less likely, but would warn of a correction to 6400/6500.
* Target calculation: 6900 + ( 6900 – 6500 ) = 7300
Dow Jones Industrial Average is headed for another test of 17000/17100 after finding support at 16400/16500. Recovery of 13-week Twiggs Money Flow above its July high would indicate that buyers are back in control. Breakout above 17100 would offer a target of 17500*. Reversal below 16400 is unlikely, but would warn of a test of the primary trendline at 16000.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
The S&P 500 followed through above Friday’s high of 1965, suggesting another attempt at 2000. Completion of a trough above zero on 21-day Twiggs Money Flow would confirm buying pressure. Breakout above 2000 would offer a target of 2250*, but expect markets to remain cautious because of current geopolitical tensions. Reversal below 1950 is unlikely, but would warn of another test of support at 1900.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250
Low CBOE Volatility Index (VIX) readings are typical of a bull market.
From Anna Nemtsova:
Pro-Kremlin think tank analyst and insider Yuri Krupnov explained the shift to me: “There’s a crisis of management in Russia,” he said. “Moscow elites have managed to convince Putin to give up the idea of Novorossiya. Many in Moscow can’t wait for European Union sanctions to be lifted, so Putin will meet with [Ukrainian President] Poroshenko and [E.U. Commission President] Barroso soon and most probably cut a deal.” But Krupnov hastens to add that Russia’s willingness to bargain with Kiev does not signal an end to the conflict: “Moscow has betrayed Novorossiya,” he says, “but that doesn’t mean it will guarantee peace.”
Read more at Novorossiya Is Coming Apart at the Seams.
Brad DeLong discusses Robert Shiller’s CAPE ratio, a stock-price measure he helped develop:
….on average, at a ten-year horizon, for any CAPE ratio below 35 the S&P has delivered average real asset returns pretty much outclassing all other major asset classes…..
Thus you can see why I am relatively unsatisfied with Shiller’s writing:
“In the last century, the CAPE has fluctuated greatly, yet it has consistently reverted to its historical mean–sometimes taking a while to do so….”
Shiller’s rhetoric leads us to focus on graphs like this one of the Campbell-Shiller CAPE, and to think that what goes up must–someday–come down:
But is there any reason to think that the central tendency of the CAPE today is the same as what it was in the 1880s or the 1950s? There is no unchanging machine buried in the earth for the past 120 years throwing dice to determine the CAPE. It would be much better to say that extreme values of the CAPE are followed by reversion not to but toward the previous historical mean. And dividends and earnings shift too. A much better graph than the CAPE graph is the cumulative reinvested return graph [on a log scale]:
It goes way up, and way down, but the dominant feature is not mean reversion but rather exponential growth…..
Read more at Under What Circumstances Should You Worry That the Stock Market Is "too High"? | Brad DeLong.
George Dorgan writes:
Since both the positive and the negative phases of a financial cycles take around seven years, financial cycles are sometimes called “Joseph cycle“, from the biblical prophet Joseph that speaks of seven good and seven bad years. The financial cycle connected to expectations about real estate prices, is also called credit cycle…..After the bust of dot com bubble in 2001, the Fed lowered interest rates. Credit was easily available and private debt strongly increased. Government debt remained relatively stable.
Only in few countries like Germany, Japan or Switzerland people were far more cautious, because they had seen a real estate bubble bust in the 1990s. The leveraging phase finally ended in 2011, in China and in some other emerging markets…..
We think that the reduction of debt will continue to be the main driver of global economies during the next Joseph cycle, in the next seven years. After the US lowered debt levels until 2011/2012 it is now time for Europe except Germany and Switzerland and Emerging Markets….
Read more at Debt, the Joseph Cycle Determinant between 2011 and 2017 -SNBCHF.COM.
From Joe Weisenthal:
Historical analysis of past big busts done by top economist Jan Hatzius and Sven Jari Stehn shows that while there is growing risk of a stock market drop because of the big rally we’re missing one of the key preconditions needed for a true bust: high credit growth.
They write: “[C]redit growth is the most important predictor of house price busts, especially when we focus on busts that involve a recession. House price busts have also tended to follow periods of high inflation, high equity volatility and large current account deficits, although all of these effects become less pronounced when we focus on recessionary busts….”
Joe Weisenthal on Yale Professor Robert Shiller’s CAPE pricing model:
So while it’s true that the market is very expensive right now, based on his measure, [Shiller] notes that it’s difficult to use this information to actually time the market. Just because it’s expensive, doesn’t mean it will go down. Furthermore, the market has been expensive based on his measure for the past 20 years excluding the period of the recent crash, which raises the question of whether there’s been some fundamental change to the economy or markets that would warrant higher valuations.
Dow Jones Europe Index continues to test its primary trendline and support at 315/325. 13-Week Twiggs Momentum below zero warns of a primary down-trend. Breach of primary support at 315 would confirm.
The S&P 500 recovered above 1950, suggesting another test of resistance at 2000. Recovery of 13-week Twiggs Money Flow above its July high would suggest that buyers have taken control. Reversal below 1900 is unlikely, but would warn that the primary trend is slowing.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250
CBOE Volatility Index (VIX) remains low, suggesting a bull market.
Dow Jones Shanghai Index is testing resistance at 295. Breakout would confirm a primary up-trend. Respect of resistance, however, would indicate further consolidation.
ASX 200 recovery above 5550 also suggests another advance. Respect of zero by 13-week Twiggs Money Flow would strengthen the signal. Reversal below 5450 is unlikely, but would warn of another test of primary support.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
