Category: Countries & Regions

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Michael Barone: The Fall of the Midwest Economic Model – WSJ.com

So what does the president have to offer the Midwest? The idea that the wave of the future is an ever-larger public sector financed by a more or less stagnant private sector looks increasingly absurd. The Midwest’s public sector has, as Margaret Thatcher put it, run on “other people’s money.” Meanwhile, Mr. Obama’s trip to the Midwest has been preceded by Texas Gov. Rick Perry’s foray into Waterloo, Iowa. Mr. Perry points out that his state, with low taxes and light regulation, has been producing nearly half of America’s new jobs.

via Michael Barone: The Fall of the Midwest Economic Model – WSJ.com.

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Behind its lectures, China is a sinner, too – FT.com

The main point is that China’s debt burden is far higher than it likes to admit, and much of that debt has piled up in the past few years, as a result of Beijing’s response to the global financial crisis.

“Even though headline sovereign debt levels are low in China, so much quasi-sovereign activity happens through the banking system that if you include some of those contingent liabilities, the number can get very big,” says Charlene Chu, head of Fitch’s China Bank Ratings.

“People forget that China undertook its fiscal stimulus package through the banking system rather than by issuing public debt in the way that other countries did.”

via Behind its lectures, China is a sinner, too – FT.com.

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Mon Dieu! French Banks Could Pull Down the Economy

As of the end of March 2011, French banks held $410 billion of Italian debt, by virtue of their holdings of Italian government bonds and loans to the private sector, according to the Bank for International Settlement. They were also on the hook for $86 billion because of credit commitments, derivatives contracts and other loan guarantees in Italy.

The ability of the French financial system to weather an Italian storm is doubtful because French banks are less capitalized than their major European counterparts.

via Mon Dieu! French Banks Could Pull Down the Economy.

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China Momentum v. Money Flow

The Shanghai Composite displays a similar bullish divergence on 21-day Twiggs Money Flow to the DJ Shanghai Index. Follow-through above 2660 is likely, but resistance at 2820 is expected to hold.

Shanghai Composite Index

* Target calculation: 2600 – ( 2800 – 2600 ) = 2400

The Hang Seng Index shows a similar (Twiggs Money Flow) bullish divergence to the Shanghai Composite, but both display a sharp fall on 63-day Momentum below zero, warning of a primary down-trend. Expect a rally to test resistance at 21500, but the bear market will continue.

Hang Seng Index

* Target calculation: 19500 – ( 21500 – 19500 ) = 17500

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Kiwi 50 face strong selling pressure

The NZ50 Index is retracing to test 3300, but 13-week Twiggs Money Flow deep below zero warns of strong selling pressure. Respect of resistance is likely, followed by another test of support at 3100.

New Zealand NZ50 Index

* Target calculation: 3300 – ( 3600 – 3300 ) = 3000

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India Singapore

India’s Sensex Index closed lower Friday on average volume. 13-Week Twiggs Money Flow continues below zero, warning of selling pressure. Breakout below Tuesday’s low of 16500 would confirm the decline to 16000*.

India SENSEX Index

* Target calculation: 17500 – ( 19000 – 17500 ) = 16000

The Singapore Straits Times Index fared better. Recovery above 2900 would indicate a bear rally, but resistance at 3000 is expected to hold.

Singapore Straits Times Index

* Target calculation: 2800 – ( 3000 – 2800 ) = 2600

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Asian pennants

Japan’s Nikkei 225 Index displays a wide pennant formation, suggesting continuation of the down-trend. 21-Day Twiggs Money Flow deep below zero indicates selling pressure. Breakout below 8800 would offer a target of 7800*. Upward breakout is less likely, but would test resistance at 9300/9400.

Nikkei 225 Index

* Target calculation: 8800 – ( 9800 – 8800 ) = 7800

The Seoul Composite Index displays a similar pennant. Friday’s red candle on stronger volume confirms selling pressure. Downward breakout is likely and would offer a target of 1500*.

Seoul Composite Index KOSPI

* Target calculation: 1800 – ( 2100 – 1800 ) = 1500

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What a real bounce looks like

Question from Flint:

If this is an example of a dead cat bounce then what would we look for in a real bounce… .

The best example I can find is the mini-crash of October 1997. The Dow gapped down sharply following a fall in Asian markets, but met with strong buying support the next day. The total correction of 12% did not reach the 6400 level from start of the year. The long-term rising trendline was not tested and 63-Day Twiggs Momentum declined but failed to break below zero. Volume doubled in the week following the crash, confirming buying support.

Dow Jones Industrial Average 1997 Mini-Crash

The 2011 crash is not specific to one region as with the 1997 Asian crisis. The index had not made much progress for the year and the fall of 17% broke well below the starting level of 11500. The long-term rising trendline was breached and 63-Day Twiggs Momentum dropped sharply below zero. Volume doubled in the week following the crash, as in 1997, but this is a completely different scenario: it would take similar volume for 4/5 successive weeks to stop the bear market in its tracks.

Dow Jones Industrial Average 2011 Crash

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China bucks the trend

Despite the global bear market, Dow Jones Shanghai Index rallied above resistance at 330, with bullish divergence on 21-day Twiggs Money Flow indicating buying pressure. Expect a test of 360. In the long term, breakout above 360 would signal reversal to an up-trend.

Dow Jones Shanghai Index

* Target calculation: 330 – ( 360 – 330 ) = 300

Dow Jones HongKong Index displays a similar bullish divergence on 21-day Twiggs Money Flow, indicating buying pressure. Resistance at 450 is unlikely to hold, leading to a re-test of 480.

Dow Jones HongKong Index

* Target calculation: 450 – ( 480 – 450 ) = 420

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Japan, Korea hesitate

The Dow Jones Japan Index ($JPDOW) formed a small pennant consolidation, favoring continuation of the down-trend. Follow-through below 50.50 would confirm, whereas recovery above 52.00 would indicate retracement to test 53.30. 21-Day Twiggs Money Flow deep below zero warns of strong selling pressure.

Dow Jones Japan Index

* Target calculation: 54 – ( 58 – 54 ) = 50

DJ South Korea encountered resistance below 400, indicated by a red candle and up-tick in volume. Reversal below 360 would warn of another down-swing.

Dow Jones South Korea Index

* Target calculation: 370 – ( 430 – 370 ) = 310

The Dow Jones Taiwan Index fared slightly better, advancing to 186 on light volume. Follow-through on Tuesday would confirm a rally to test resistance at 200.

Dow Jones Taiwan Index

* Target calculation: 196 – ( 216 – 196 ) = 176

I have used the Dow Jones Index Series as data is 15-minute delayed. I will update the better-known Nikkei and KOSPI indices when these are updated at 7:00 p.m. ET.

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