Canada’s TSX 60 index is consolidating between 680 and 720. Upward breakout would penetrate the descending trendline, indicating that the primary down-trend is weakening. A 13-week Twiggs Money Flow trough that respects the zero line would signal a primary up-trend. Reversal below 680, however, would warn of another test of primary support at 620.
* Target calculation: 720 + ( 720 – 680 ) = 760
The Nasdaq 100 is consolidating in a narrow band below resistance at 2400 on the weekly chart, suggesting an upward breakout. Follow-through above 2450 would confirm the target of 2800*. 13-Week Twiggs Money Flow continues to signal buying pressure after an earlier bullish divergence.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
The Dow Industrial Average is consolidating below 12300. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Breakout above 12300 would offer a target of 12800*. Failure of support at 11600 is less likely, but would mean another test of primary support at 10600.
* Target calculation: 12200 + ( 12200 – 11600 ) = 12800
The S&P 500 is similarly consolidating between 1220 and 1300. Expect strong resistance at 1350.
Comparing to early 2008, the S&P500 displays a similar pattern, with the index testing resistance at 1400. We are close to a watershed: reversal below medium-term support (1220) would be a strong bear signal, while follow-through above recent highs would dispel fears of another bear market.
The FTSE Italian MIB index found support at 15000. Expect an upsurge in response to news that Mario Monti has been asked to form a new government. Breakout above 17000 would signal a rally to 19000. Rising 13-week Twiggs Money Flow indicates consistent buying pressure over the past few weeks.
* Target calculation: 17 + ( 17 – 15 ) = 19
France’s CAC-40 index similarly found support at 3000. Recovery above 3400 would offer a target of 3800, but 63-day Twiggs Momentum, a long way below zero, indicates a primary down-trend.
* Target calculation: 2800 – ( 3400 – 2800 ) = 2200 AND 3400 + ( 3400 – 3000 ) = 3800
The German DAX found support at 5700. Recovery above 6400 would offer a target of 7100, while failure of support would warn of another test of primary support at 5000.
* Target calculation: 6400 + ( 6400 – 5700 ) = 7100
The FTSE 100 is also consolidating above medium-term support — this time at 5350. 13-Week Twiggs Money Flow continues to signal strong buying pressure. Breakout above 5700 would re-test the 2011 highs at 6100. Failure of support is unlikely, but would warn of another test of primary support at 4800.
* Target calculation: 5700 + ( 5700 – 5300 ) = 6100
We need to remember, however, that this is still a bear market. We have seen one or two favorable news headlines but very little substance. And the European economy faces strong headwinds over the next few years.
[Silvio] Berlusconi, who failed to secure a majority in a crucial vote on Tuesday, stepped down as prime minister after parliament passed a package of measures demanded by European partners to restore market confidence in Italy’s strained public finances.
Former European Commissioner Mario Monti is expected to be given the task of trying to form a new administration to face a widening financial crisis which has sent Italy’s borrowing costs to unmanageable levels.
The austerity measures approved by [Italian] Parliament include selling state assets and increasing the retirement age to 67 from 65 by 2026. They would decrease the power of professional guilds, privatize municipal services and offer tax breaks to companies that hire young workers.
The current structure of Europe cracks under the slowly rising stress of vendor financing: export-based prosperity for some, debt-financed consumption by others. Unless reformed, this can only end badly. The global economy has similar imbalances. In 2010 the trade surpluses of China, Russia, and East Asia (China being half the total) were almost equal to the US trade deficit of $560 billion. OPEC, Germany, and Japan accumulated another $518 billion surplus. These numbers continue year by year, accumulating stress that will eventually break the current global financial order.
We should watch and learn from Europe’s experience in the months to come. We, and the rest of the world, may follow them sooner than we expect.
With the ECB providing a bid for Italian bonds that might not otherwise exist, board members at some of Europe’s largest bank say now is the time to accelerate disposals. Many are also reversing long-standing policies of buying into new Italian bond issues, denying Rome an important base of support.
“Our traditional buying days are no longer,” said one board member at a European bank, one of Italy’s 10 biggest creditors, who added that the bank has also sold off previous bond purchases. “Unless there is more certainty on Italians changing direction, it will be very tough for them to find buyers.”
In October, normally a peak month for home buying, real estate transactions plunged 25 per cent month on month, according to the statistics bureau.
via China’s inflation victory comes with high price – FT.com.
Big investors felt comfortable owning big stakes of Italian debt in part because they knew they could sell without much difficulty. That has changed.
“It used to be one of the most liquid markets out there, but it isn’t anymore,” said Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London. Not long ago, an investor had little problem buying or selling €500 million of Italian bonds at a clip, he said. “Now it’s difficult to trade more than €50 million.” The worsened trading conditions have led to more-exaggerated moves.
via Italy Fears Rattle World’s Investors – WSJ.com.
Liquidity is drying up in the Italian bond market, making it near impossible to roll-over maturing debt issues. The Italian bond market is third biggest in the world. If the EMU struggled to reach an accord over Greece, what chance do they have now?
[Jens Nordvig at Nomura] estimates suggest that $100-125bn may have been repatriated by Eurozone equity portfolio investors in Aug-Oct.
This is an outsized figure, and may have helped avoid a much bigger decline in EURUSD since August.
Looking ahead, we are skeptical that this repatriation flow will continue to provide strong support for the Euro.
via Here’s One Reason the Euro Hasn’t Gotten Crushed. Yet. – MarketBeat – WSJ.
