The TSX 60 broke its descending long-term trendline, suggesting that the index is forming a base. Rising 13-week Twiggs Money Flow signals buying pressure. Breakout above 720 would signal the start of a primary up-trend.
* Target calculation: 720 + ( 720 – 640 ) = 800
Australia’s ASX 200 index continues to range between 3850 and 4350. Declining 21-day Twiggs Money Flow reflects medium-term selling pressure, but the long-term rise reflects buying support. Failure of support at 4000 would suggest another test of 3850, but only breakout from the range will offer a clear long-term signal.
China’s Shanghai Composite index respected resistance at 2300, suggesting a decline to 2000*. Deep negative values on 63-day Twiggs Momentum are evidence of a strong primary down-trend.
* Target calculation: 2150 – ( 2300 – 2150 ) = 2000
India’s Nifty Index is headed for a test of the upper border of its downward trend channel at 5200. 63-Day Twiggs Momentum holding below zero continues to indicate a strong primary down-trend.
* Target calculation: 5600 + ( 6600 – 5600 ) = 5100
Japan’s Nikkei 225 Index fell sharply Monday to test short-term support at 8360. 13-Week Twiggs Money Flow below zero indicates selling pressure. Breakout below 8200 would warn of another primary decline, with a target of 7400*.
* Target calculation: 8200 – ( 9000 – 8200 ) = 7400
The FTSE 100 is testing resistance at 5750 but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Respect of resistance would suggest another test of primary support at 5050. Upward breakout is less likely, but would indicate an advance to 6300*.
* Target calculation: 5700 + ( 5700 – 5100 ) = 6300
The DAX is testing resistance at 6400. Breakout would indicate an advance to 7400*, but reversal of below the rising trendline — or 13-week Twiggs Money Flow below zero — would warn of another test of primary support at 5000.
* Target calculation: 6400 + ( 6400 – 5400 ) = 7400
Italy’s MIB Index is more hesitant than the DAX. Breakout above 17000 would signal a primary advance, but failure of support at 13000 would indicate a decline to 9000*. Reversal of 13-week Twiggs Money Flow below zero would warn of increased selling pressure.
* Target calculation: 13 – ( 17 – 13 ) = 9
The S&P 500 index is testing resistance at 1300. Breakout would signal a primary up-trend with a target of 1450* for the initial advance. Mild bearish divergence on 13-week Twiggs Money Flow warns of selling pressure, however, and reversal below the rising trendline would indicate another test of primary support at 1160.
* Target calculation: 1300 + ( 1300 – 1150 ) = 1450
The Nasdaq 100 is also testing resistance, at 2400. Rising 63-day Twiggs Momentum and 13-week Twiggs Money Flow both suggest an upward breakout, which would offer a target of 2800* for the initial advance.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
Treasury yields are falling, indicating a flight to safety. Uncertainty in Europe and China is likely to hurt the market and we should only accept bull signals if they have strong confirmation.
Friday provided the markets with two reminders that the euro crisis hasn’t gone away. The decision by Standard & Poor’s to downgrade nine members of the euro zone, including France being stripped of its Triple-A rating and Italy being downgraded to Triple-B, had been widely expected.
But the collapse of the negotiations between Greece and its private-sector bondholders over a voluntary write-down of its debt wasn’t anticipated. The International Institute of Finance, which is negotiating on behalf of bondholders, said it hadn’t been able to agree a deal.
via Agenda: Greek Situation Is Most Serious of Latest Euro Crisis – WSJ.com.
- The US recovery from the 2007–2009 recession has been particularly disappointing, in part due to the moribund state of the housing market.
- The state of the housing market is in part a symptom of excess leverage, the US’ core concern.
- Excess leverage will continue to weigh on US economic growth, restricting it to a sub-trend pace for the foreseeable future, resulting in a need for further QE.
….. Given the size of the US’ debt stock and the lack of assets set aside to fund future pension liabilities, it is logical to conclude that above-trend growth conditions are a long way off. In the meantime, households and government authorities will remain heavily exposed to any further deterioration in conditions, whether it be domestic or foreign (i.e. Europe) in origin.
QE3 will be needed merely to help protect against a further deterioration in economic conditions. Such a program would have to be large in scale and in coverage, likely covering USTs, mortgage securities and, with time, the existing debt of SLGs.
A final point: the degree of easing required to alleviate the financial stresses the US economy currently faces (and hopefully at least maintain the current level of activity) has not been recognised by markets. Given the precarious state of Europe, the market will likely take its time in coming to terms with the US’ own concerns. But, when the spotlight falls on the US, we expect a greater awareness of US credit risk and the absence of near-term growth prospects will see yields rise and the US dollar fall.
About a decade ago….. I estimated the following simple formula for setting the federal funds rate:
Federal funds rate = 8.5 + 1.4 Core inflation – Unemployment
….Eddy Elfenbein has recently replotted this equation. Here it is:
via Greg Mankiw’s Blog: The Liquidity Trap may soon be over.
Neurosis: Emotional disorder arising from no apparent organic lesion or change and involving symptoms such as insecurity, anxiety, depression, and irrational fears…… No longer in scientific use.
Eurosis: Economic disorder involving symptoms such as insecurity, anxiety and depression, arising from rational fears of a collapse of the European monetary and banking system……. No longer of much use.
Europe
Dow Jones Europe index encountered (medium-term) resistance at 240. 21-Day Twiggs Money Flow below zero warns of selling pressure. Expect a test of primary support at 210. Failure of support would indicate a fall to 160*.
* Target calculation: 210 – (260 – 210 ) = 160
US
The S&P 500 index is stronger, testing resistance at 1300. Breakout would signal resumption of the primary up-trend. We are likely to see significant window-dressing ahead of the November 2012 election. The market may well respond, but the real picture is bleaker with an economy reliant on deficit-spending in order to avoid a slide back into recession. Respect of resistance at 1300 would warn of another test of primary support at 1160.
Australia
ASX 200 index reflects the middle ground. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure but the index is presently testing primary support at 4000. Failure would signal a fall to 3650*. News of a fresh stimulus program in China, however, should help support resources stocks.
* Target calculation: 4000 – (4350 – 4000 ) = 3650
China’s Shanghai Composite index has been edging lower since breaking support at 2400. 63-Day Twiggs Momentum, declining below zero, confirms a primary down-trend. Expect a test of the 2008 low at 1700 in the months ahead.
* Target calculation: 2400 – ( 3200 – 2400 ) = 1600
India’s Sensex Index broke support at 16000 but then retraced to test the new resistance level. An encouraging bullish divergence on 13-week Twiggs Money Flow shows buying pressure. Breakout above 16000 would indicate a rally to 18000. Respect of resistance, however, would confirm the down-swing to 14000*.
* Target calculation: 16 – ( 18 – 16 ) = 14
Singapore’s Straits Times Index follows a similar course to India. Recovery above 2900 would signal a (primary trend) reversal.
Hong Kong’s Hang Seng Index faces similar resistance at 20000. Respect would indicate another test of 16000, while breakout would signal a reversal.
The weekly chart shows Japan’s Nikkei 225 index on a similar path to Shanghai — headed for a test of its 2008/9 lows. Failure of medium-term support at 8200 would strengthen the signal. 13-Week Twiggs Money Flow below zero warns of selling pressure.
* Target calculation: 9 – ( 11 – 9 ) = 7
South Korea’s Seoul Composite index is testing resistance at 1920 but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Reversal below 1800 would suggest another test of support at 1650. Upward breakout is unlikely but would indicate a (primary trend) reversal.
Here’s my entry for Overlooked Chart of the Year. It shows how the S&P 500 (in blue) and the market’s inflation expectations (the 10-year TIPs spread in red) have been waltzing partners for the last four years.
