Dow Jones UK index reversed above the former primary support level at 282, warning of a bear trap.
The Surest Cure for America’s Political Insanity | Stephen M. Walt
All this mishigas is happening in part because the United States is in fact very secure, which leads many people to think it doesn\’t need a strong central state. They are therefore willing to countenance steps that they would not consider if the country were really facing a serious external danger.
~ Stephen M. Walt
Read more at The Surest Cure for America's Political Insanity | Stephen M. Walt.
Forex: Euro, Aussie up-trend
The Euro continues to test its new support level at $1.34/$1.3450. Respect is likely and would signal a test of the February high at $1.37. Breakout above $1.37 would offer a long-term target of $1.47*. A trough above zero on 13-week Twiggs Momentum indicates a healthy up-trend. Failure of support — and penetration of the rising trendline — is unlikely, but would warn of another correction.
* Target calculation: 1.37 + ( 1.37 – 1.27 ) = 1.47
Sterling faltered after breaking resistance at €1.19. Reversal below €1.18 would warn of another test of primary support at €1.14. Follow-through above €1.20 is less likely, but would signal an advance to €1.24*.
* Target calculation: 1.19 + ( 1.19 – 1.14 ) = 1.24
The greenback is testing primary support at ¥96 against the Yen. Reversal of 13-week Twiggs Momentum below zero would warn of a primary down-trend. Follow-through below ¥94 would confirm. Recovery above ¥101 is less likely, but would indicate another advance.
* Target calculation: 96 – ( 100 – 96 ) = 92
Canada’s Loonie respected its descending trendline and is testing support at $0.96. Failure (of support) would signal another test of the primary level at $0.9450. Bullish divergence on 13-week Twiggs Momentum continues to favor a primary up-trend. Breakout above $0.9750 is presently unlikely, but would complete a double-bottom reversal with a target of parity*.
* Target calculation: 97.5 + ( 97.5 – 94.5 ) = 100.5
The Aussie Dollar is retracing to test its new support level at $0.94 against the greenback. Respect would indicate a test of resistance at $0.95, but failure is as likely and would warn of another test of medium-term support at $0.93. Breach of $0.93 would be more serious, warning of a correction to primary support at $0.89.
* Target calculations: 0.95 + ( 0.95 – 0.93 ) = 0.97
The Aussie continues to test primary support at $1.12 against its Kiwi neighbour. Recovery above $1.14 — and the descending trendline — would indicate a test of primary resistance at $1.16. Breakout above $1.16 would complete a double-bottom reversal with a target of $1.20*. Breach of primary support remains as likely, however, and would offer a target of $1.08*.
* Target calculations: 1.12 – ( 1.16 – 1.12 ) = 1.08
Household Debt to Income ratio
Barry Ritholz highlights the alarming debt to income ratio for Canada compared to the USA:
How does Australia compare?
Australian household debt to income is similar to Canada’s. There has been discussion recently about whether Australia is in a housing bubble. As Anna Schwartz (joint author of A Monetary History of the United States, 1867-1960 with Milton Friedman) pointed out: there is only one kind of bubble and that is a debt bubble. It may manifest through rising real estate, stock or other asset prices, but the underlying driver is the same: a rapid expansion of the money supply through easy credit.
China & India bouyant, Japan weakens
Japan’s Nikkei 225 broke short-term support at 14300, indicating a correction to 13000. Penetration of the rising trendline would warn that momentum is slowing, while breach of 13000 would signal a primary down-trend. Earlier bearish divergence on 13-week Twiggs Money Flow warned of a reversal; decline below recent lows at 15% would strengthen the signal.
China’s Shanghai Composite followed through today above the (secondary) declining trendline, suggesting a rally to test resistance — and the upper trend channel — at 2330. A 21-day Twiggs Money Flow trough above zero would indicate medium-term buying pressure. Reversal below 2150 is unlikely, but would indicate another test of primary support at 1950.
India’s Sensex is consolidating below resistance at 20400 — a bullish sign. Breakout above 20400 would signal another primary advance, but reversal below 19400 is as likely, and would warn of another test of 18000. A 13-week Twiggs Money Flow trough above zero would indicate long-term buying pressure.
* Target calculation: 18500 – ( 20500 – 18500 ) = 16500
FTSE breaks primary support
The FTSE 100 broke support at 6400, signaling a primary down-trend. Penetration of the rising trendline would strengthen the signal. Expect a test of the June low at 6000. Bearish divergence on 13-week Twiggs Money Flow highlights strong selling pressure; crossover to below zero would further strengthen the signal. Recovery above 6400 is unlikely, but would warn of a bear trap.
Germany’s DAX is a lot more bullish, testing the new support level at 8500. Respect would offer a medium-term target of 9300*. Reversal below 8000 is unlikely, but would warn of another test of primary support at 7500/7600.
* Target calculation: 8500 + ( 8500 – 7700 ) = 9300
France’s CAC-40 is similarly testing new support at 4100. Recovery above its 2011 high of 4200 would offer a target of 4400*. Reversal below 3900 is unlikely but would warn of a test of primary support at 3600.
* Target calculation: 4000 + ( 4000 – 3600 ) = 4400
Spain’s Madrid General Index is even stronger, with no hint of retracement while 13-week Twiggs Money Flow indicates medium-term buying pressure. Retracement that respects support at 900 would confirm an advance to 1050*. Reversal below 900 is unlikely, but would warn of a correction.
* Target calculation: 900 + ( 900 – 750 ) = 1050
Italy’s MIB Index broke through resistance at 17500/18000, signaling a primary advance to 20000*. Successive troughs above zero on 13-week Twiggs Money Flow suggest a strong primary up-trend. Reversal below 17500 and the rising trendline is unlikely, but would warn of a bull trap.
* Target calculation: 17500 + ( 17500 – 15000 ) = 20000
TSX threatens reversal
Canada’s TSX 60 index encountered strong resistance at 740 and is now testing short-term support at 725. Failure of support at 725 would indicate another test of primary support at 710. Bearish divergence on 13-week Twiggs Money Flow warns of a reversal. Breach of primary support would confirm.
TSX 60 VIX crossed to above 15, but remains in bull territory.
Dow threatens reversal
The S&P 500 broke support at the May high of 1675 and penetrated the (secondary) rising trendline, signaling a correction to primary support at 1625/1630. Recovery above 1700 is most unlikely at present, but would indicate another advance.
VIX crossed to above 20: no-man’s-land between low and high. Follow-through above 25 would warn of elevated market risk.
Dow Jones Industrial Average is testing primary support at 14750. Bearish divergence on 21-day (and 13-week) Twiggs Money Flow warns of a reversal. Breach of 14750 would strengthen the signal. Follow-through below 14500/14600 would confirm. Recovery above 15000 is unlikely, but would indicate a rally to 15700.
The September quarter-end often heralds a correction as fund managers re-balance their portfolios and shed under-performing stocks. Congressional gridlock raises the probability even higher.
Iran readies offer to limit its nuclear program| WSJ.com
Iran is preparing a package of proposals to halt production of near-weapons-grade nuclear fuel, a key demand of the U.S. and other global powers, according to officials briefed on diplomacy ahead of talks in Geneva next week.
Tehran in return will request that the U.S. and European Union begin scaling back sanctions that have left it largely frozen out of the international financial system and isolated its oil industry, the officials said.
Read more at Iran Readies | WSJ.com – Jay Solomon.
ASX signals correction despite Shanghai rally
Dow Jones Shanghai Index penetrated its (secondary) descending trendline today, suggesting an up-swing to test resistance between 298 and 304 at the upper trend channel. Reversal below 282 and the lower trend channel is unlikely, but would warn of another test of primary support at 248.
The ASX 200, however, broke its rising trendline and short-term support at 5200, warning of a correction to primary support at 4650. Breach of medium-term support at 5000 would further strengthen the signal.
