Category: Countries & Regions

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S&P 500 breakout

Short candles on the S&P 500 indicate some opposition, but breakout above resistance at 1675 indicates an advance to 1800*. Follow-through above 1700 would strengthen the signal. The 21-day Twiggs Money Flow trough above zero indicates medium-term buying pressure — and a healthy up-trend. Reversal below 1650 is unlikely, but would warn of another test of primary support at 1560.

S&P 500 Index

* Target calculation: 1680 + ( 1680 – 1560 ) = 1800

The VIX below 15 suggests low market risk.

VIX Index

The TSX Composite Index is advancing towards resistance at 12900. Breakout would signal a primary advance, with a long-term target of 14000*. Follow-through above 13000 would strengthen the signal. Breach of the declining trendline on 13-week Twiggs Money Flow would also suggest improving buying pressure. Respect of 12900, however, and reversal of 13-week TMF below zero, would warn of another test of 11750.

TSX Composite Index

* Target calculation: 13000 + ( 13000 – 12000 ) = 14000

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Finally, Bank Regulators Have Had Enough | ProPublica

Jesse Eisinger observes US bank reactions to efforts to raise their minimum capital requirements. Many argue that the new rules will harm their competiveness.

Jamie Dimon, the chief executive of JPMorgan, raised the ominous specter that global rules are out of “harmonization” and that United States banks are now held to a higher standard.

“We have one part of the world at two times what the other part of the world is talking about,” he said. “And I don’t think there’s any industry out there that would be comfortable with something like that in a long run.”

To rebut that, I bring in a banking expert: Jamie Dimon. This side of Mr. Dimon’s mouth has repeatedly boasted about what a competitive advantage JPMorgan’s “fortress balance sheet” is, how the bank was a port in the 2008 storm…….

By raising capital standards and installing tougher derivatives rules, regulators are helping banks that are too foolish (or rather, the top executives who are too narrowly self-interested in increasing their own compensation in the short term) to recognize their own interests.

Increasing bank capital requirements would lower their perceived risk and decrease their cost of capital, giving them an advantage over international rivals with less stringent standards.

Read more at Finally, Bank Regulators Have Had Enough – ProPublica.

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Forex: Euro rallies, Yen weakens, Aussie consolidates

The Euro continues to test medium-term resistance at $1.32 on the weekly chart. Breakout above $1.32 would suggest a primary advance, with a target of $1.40* — confirmed if resistance at $1.34 is broken. But oscillation of 63-day Twiggs Momentum around zero does not indicate a strong trend and respect of resistance remains as likely.

Euro/USD

* Target calculation: 1.34 + ( 1.34 – 1.28 ) = 1.40

The greenback recovered above long-term support at ¥100 against the Yen, indicating continuation of the advance, with a target of ¥114*. Follow-through above ¥101.50 would confirm. Reversal below ¥100 is unlikely, but would warn of a test primary support at ¥94; confirmed if support at ¥98.50 is broken.

USD/JPY

* Target calculation: 104 + ( 104 – 94 ) = 114

Canada’s Loonie broke resistance at $0.96, suggesting a rally to the descending trendline and resistance at $0.98 against the greenback. Reversal below $0.96, however, would warn of another test of support at $0.9450. 63-Day Twiggs Momentum declining while below zero reflects a healthy primary down-trend.

Canadian Loonie

The Aussie Dollar is consolidating below medium-term resistance at $0.93 against the greenback. Breakout would signal a rally to the primary trendline at $0.96. But the primary trend remains downward and respect of $0.93 would re-test $0.90. The long-term target remains at $0.80* against the greenback. The RBA favors a softer dollar to cushion the impact of falling commodity prices.

Aussie Dollar

* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80

The impact of the declining resources sector is reflected in the primary down-trend on the Aussie/New Zealand Dollar cross. AUDNZD is approaching its target of $1.15 and breakout above the descending trendline would indicate a rally to test resistance at $1.21. But respect of $1.21 would be likely, suggesting another downward leg on the Aussie/Kiwi cross.

Aussie Dollar

* Target calculation: 1.21 – ( 1.27 – 1.21 ) = 1.15

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Canadian housing bubble looks ripe for popping | Toronto Star

Adam Peterson writes the Canadian housing bubble is headed for a “slow-motion” crash:

My gravest concern is that Canada is fast approaching a 5:1 home-price-to-income ratio, a benchmark achieved by the U.S. at the peak in 2006. Since the correction, the U.S. ratio now hovers at approximately 3:1.

To compound the problem, household debt in Canada has breached 150 per cent of income and continues in the wrong direction; households are not cushioned against a blow.

Australian household debt is also hovering around 150% of disposable income.

Australian household debt to disposable income

While the price-to-income ratio varies between 4 and more than 6 depending on whether you use national averages or median data.
Australian house price-to-income ratio

Read more at Canadian housing bubble looks ripe for popping | Toronto Star.

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FTSE hesitates while DAX gaps ahead

Dow Jones Europe Index is ranging between 270 and 290 on the weekly chart, indicating a weak advance after earlier breaking long-term resistance at 265. Breakout above 290 would signal continuation, but reversal below 270 remains as likely and would warn of a reversal; confirmed if the index follows-through below 265.
Dow Jones Europe Index
The FTSE 100 broke resistance at 6500 (from the March 2013 peak), indicating an advance to 6900. But tall shadows (or candlewicks) on Thursday and Friday warn of short-term selling pressure and reversal of 21-day Twiggs Money Flow below zero strengthens the signal. Breach of support at 6400 would warn of another test of primary support at 6000.
FTSE 100 Index

* Target calculation: 7000 + ( 7000 – 6000 ) = 8000

Germany’s DAX gapped above the declining trendline, signaling another primary advance, with a target of 9300*. Breach of resistance at 8500 would confirm. Recovery of 21-day Twiggs Money Flow above zero indicates medium-term buying pressure. Reversal below 8000 is unlikely, but would warn of another test of 7700.
DAX Index

* Target calculation: 8500 + ( 8500 – 7700 ) = 9300

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ASX 200 consolidates while Asia rallies

China’s Shanghai Composite Index continued its rally on Monday, headed for a test of 2150. Last week’s tall shadow (or candlewick) indicates selling pressure. Respect of resistance is likely and reversal below 1950 would signal a primary decline, with a target of the 2008 low at 1700. Reversal of 13-week Twiggs Money Flow below zero would strengthen the bear signal.

Dow Jones Shanghai Index

Last week’s dragonfly doji on Japan’s Nikkei 225 also indicates selling pressure, but the higher close hints this may have been resolved. Monday’s open is flat and reversal below last week’s low would warn of another test of primary support at 12500. Penetration of the rising trendline or a lower peak on 13-week Twiggs Money Flow would warn of trend weakness, while breach of primary support at 12500 would signal reversal.  But that is some way off and follow-through above 15000 would suggest another advance; confirmed if resistance at 16000 is broken.

Nikkei 225 Index

India’s Sensex is headed for another test of resistance at 20200. Breakout would signal an advance to 22000*. Recovery of 13-week Twiggs Money Flow above its May peak would indicate healthy buying pressure. Respect of resistance at 20200 is unlikely, but would re-test the rising trendline.

BSE Sensex Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

The ASX 200 is consolidating below resistance at 5000. Narrow consolidation is a bullish sign, but reversal below 4850 would warn of another test of primary support at 4650. Breakout above 5000 remains likely and would indicate an advance to 5850* — confirmed if resistance at 5250 is broken. Breach of primary support is unlikely, but would signal a primary down-trend. Oscillation of 21-day Twiggs Money Flow above zero would indicate healthy buying pressure.

ASX 200 Index

* Target calculation: 5250 + ( 5250 – 4650 ) = 5850

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S&P 500 and TSX advance

The S&P 500 broke resistance at 1675 but the short candle indicates (short-term) selling pressure. Follow-through above the May high at 1690 would confirm the primary advance, with a target of 1800*. The 21-day Twiggs Money Flow trough above zero indicates medium-term buying pressure. Reversal below 1650 is unlikely, but would warn of another test of primary support at 1560.

S&P 500 Index

* Target calculation: 1680 + ( 1680 – 1560 ) = 1800

The VIX below 15 indicates market optimism.

VIX Index

The TSX Composite Index has advanced strongly since the bear trap below 12000.  Recovery of 13-week Twiggs Money Flow above zero indicates medium-term buying pressure. Target for the advance is 12900.  Breakout would offer a long-term target of 14000*. Reversal below 12000 is unlikely, but would signal a primary down-trend; confirmed if 11750 is broken.

TSX Composite Index

* Target calculation: 13000 + ( 13000 – 12000 ) = 14000

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US banks face tougher capital requirements

Yalman Onaran and Jesse Hamilton at Bloomberg report on a new joint proposal by the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency:

The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors.

The eight largest firms, including JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS), would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed yesterday. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply.

The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.

While the authors term the new regulations “harsh” on bankers and likely to freeze bank lending, existing lax capital requirements give bankers a free ride at the expense of the taxpayer. Their claims are baseless:

  • existing bank leverage is way too high for a stable financial system;
  • US banks are flush with funds, holding more than $1.8 trillion in excess reserves on deposit with the Fed and $2.6 trillion invested in Treasuries and quasi-government mortgage-backed securities, so talk of a lending freeze is farcical;
  • banks can function just as well with equity funding as with deposit funding;
  • higher capital ratios will make it cheaper for banks to raise additional capital as lower leverage will reduce the risk premium.

So why are bankers squealing so loudly? In a nutshell: bonuses. Higher capital requirements and no free ride at taxpayers’ expense would mean that shareholders claim a bigger slice of the pie, with less left over for management bonuses.

For a detailed rebuttal of bankers’ claims see Anat Admati and Martin Hellwig.

The big four Australian banks should take note. They currently maintain between 4.1% (CBA) and 4.5% (WBC) of capital against lending exposure. Raising the ratio to 6.0% would require 33% to 50% new capital.

Read more at U.S. Banks Seen Freezing Payouts Under Harsh Leverage Rule – Bloomberg.

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Forex: Dollar falls sharply against Euro, Aussie, Loonie and Yen

The dollar fell sharply against the Euro and Sterling. The Euro jumped from primary support at $1.28 to medium-term resistance at $1.32. Breakout above $1.32 would suggest a primary advance, with a target of $1.40* — confirmed if resistance at $1.34 is broken. But oscillation of 63-day Twiggs Momentum around zero does not indicate a strong trend and respect of resistance is just as likely.

Euro/USD

* Target calculation: 1.34 + ( 1.34 – 1.28 ) = 1.40

Pound Sterling is weakening against the euro, breach of medium-term support at €1.16 suggesting a test of primary support at €1.1350 on the weekly chart. A 13-week Twiggs Momentum peak below zero would indicate a strong primary down-trend. Breach of primary support would offer a target of the 2011 low at €1.10.
Pound Sterling

The greenback retreated below support at ¥100 against the Yen. Recovery above ¥100 would indicate continuation of the advance, with a target of ¥114*. Respect of the new resistance level, however, remains as likely and would warn of a test primary support at ¥94.

USD/JPY

* Target calculation: 104 + ( 104 – 94 ) = 114

Canada’s Loonie broke resistance at $0.96, suggesting a rally to the descending trendline and resistance at $0.9850 against the greenback. Reversal below $0.96, however, would warn that all bets are off and another test of  support at $0.9450 is likely. 63-Day Twiggs Momentum oscillating below zero indicates a healthy primary down-trend.

Canadian Loonie

The Aussie Dollar penetrated its secondary descending trendline, suggesting a rally to test the primary trendline at $0.96. But first we need a break of resistance at $0.93, while follow-through above $0.94 would strengthen the signal. Respect of resistance, however, would warn of another test of immediate support at $0.90, while the long-term target remains at $0.80* against the greenback. The RBA is not averse to this: they need a softer dollar to cushion the impact of falling commodity prices.

Aussie Dollar

* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80

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