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Germany’s DAX is retracing to test support at 10200. The DAX has formed a narrow line (or consolidation) between 10200 and 10800 over the last quarter. Declining Twiggs Money Flow is typical during a consolidation and does not have much significance unless it crosses below zero. Breakout will signal future direction, either an advance to 11500* or a test of support at 9000.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
The Footsie (FTSE 100) is again testing support at 6700. Declining Twiggs Money Flow warns of selling pressure. Breach of 6700 is likely and would warn of a correction to 6500.
From Alex Barker:
Some British ministers reckon that Europe will eventually realise there are negative consequences for all sides from a hard, sharp Brexit. One is the competitive threat posed by a UK unbound. Dubbed the “Singapore model”, this is a scenario of British tax and regulatory “dumping” that European capitals fear. Britain is too big, too close and too similar an economy to not worry about being undercut…..
The second is the City of London. This remains Europe’s main financial hub and a hard exit could raise costs for corporate Europe and inflame weaknesses such as Italian banks.
David Davis, Brexit minister, has noted that more EU companies request a financial-services passport to operate in the UK than vice versa….
US stocks are buoyant on hopes that a Donald Trump presidency will benefit business, with major indexes flagging a bull market. But promises come first, the costs come later. While I support a broad infrastructure program and the creation of a level playing field in global markets, the actual execution of these ideas is critical and should not be allowed to be hijacked by the establishment for their own ends.
Erection of trade barriers is a useful negotiating position but is unlikely to be achieved without enormous damage to the global economy. As long as your trading partners think you are crazy enough to do it, they may be more amenable to establishing fair ground rules for international trade. If they don’t believe the threat, they will be happy to continue on their present path. So Trump walks a fine line between reassuring his allies and the domestic market, while keeping others guessing about his intentions.
Before we get carried away with hopes and expectations, however, we need to evaluate the current state of the economy in order to assess the current potential for growth.
Let’s start with the negatives.
Construction spending is slow, at about three-quarters of pre-GFC (and sub-prime) levels. It will take more than an infrastructure program to restore this (though it is a step in the right direction). What is needed is higher growth expectations for the economy.
Industrial production is close to its pre-GFC peak but has been declining since 2014.
Job growth is slowing. Decline below 1.0 percent would be cause for concern.
Rail and freight activity also reflects a slow-down since 2015.
The Philadelphia Fed’s broad-based Leading Index has also softened since 2014. Decline below 1.0 percent would be cause for concern.
One of my favorite indicators, this graph compares profit margins (per unit of gross value added) to employee costs. There is a clear cycle: employee costs (per unit) fall after a recession while profits rise. As the economy recovers and approaches full capacity, employee costs start to rise and profits fall — which leads to the next recession. At present we can clearly see employee costs are rising and profit margins are falling.
It will be difficult for corporations to continue to grow earnings in this environment. Business investment is falling.
Plowing money into stock buybacks rather than into new investment may shore up corporate performance for a while but hurts construction and industrial production. Turning this around is a major challenge facing the new administration.
Retail sales are rising as increased employee compensation costs lift consumer confidence. Solid November sales with strong Black Friday numbers would help lift confidence even further.
Light vehicle sales are also recovering, a key indicator of consumers’ long-term outlook.
Rising sales and infrastructure investment are only part of the solution. What Donald Trump needs to do is prime the pump: introduce a fairer tax system, minimize red tape and reduce political interference in the economy, while enforcing strong regulation of the financial sector. Not an easy task, but achieving these goals would help restore business confidence, revive investment, and set the economy on a sound growth path.
In the short run, the market is a voting machine
but in the long run it is a weighing machine.~ Benjamin Graham: Security Analysis (1934)
The ASX 200 is testing resistance at 5500. Rising Money Flow indicates selling pressure has ended. Breakout above 5500 would complete a bear trap, indicating a primary advance to 5800*.
ASX 300 Banks Index followed through above 8000 after a brief retracement respected the new support level. Target for the primary advance is 8800*. A further secondary correction to test the new support level at 8000, however, should not be ruled out. A Twiggs Money Flow trough above zero would strengthen the bull signal.
* Target medium-term: 8000 + ( 8000 – 7200 ) = 8800
India’s Sensex found support at 26000, this week’s long tail suggesting buying pressure. Declining Twiggs Money Flow still signals selling pressure, however, and breach of 26000 would indicate a test of 25000.
Support levels are fairly weak all the way down to 23000 because of the absence of strong corrections during the March to September 2016 advance.
Japan’s Nikkei 225 Index broke resistance at 17500 while rising Money Flow indicates buying pressure. Target for the rally is the November 2015 high of 20000*.
* Target medium-term: 17500 + ( 17500 – 15000 ) = 20000
Shanghai Composite Index followed through after a brief consolidation at 3200, offering a target of 3400*. Expect retracement to test the new support level at 3100 but rising Money Flow suggests respect is likely.
* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400
Germany’s DAX formed a narrow line (or consolidation) between 10200 and 10800 over the last quarter, in line with its earlier April/May highs. Declining Twiggs Money Flow is typical during a consolidation and does not have much significance unless it crosses below zero. Breakout above 10800 would signal a primary advance with a target of 11500*. Reversal below 10200, however, should not be ruled out before then.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
The Footsie (FTSE 100) found support at 6700 but short candlestick bodies and declining Twiggs Money Flow indicate a dull rally, without much enthusiasm from buyers. Breach of 6700 is likely and would warn of a correction to 6500.
Dow Jones Industrial Average successfully tested the new support level at 18000 and has now broken resistance at 19000, confirming the target of 20000*. Rising Twiggs Money Flow indicates selling pressure has ended. Expect a brief retracement to test support at 19000 but respect is likely.
* Target medium-term: 18000 + ( 18000 – 16000 ) = 20000
Charles Dow, founder of Dow Theory more than a century ago, always waited for confirmation from the Rail Average. Nowadays, railways have diminished in importance and we use the broader Transport Average which currently signals a primary up-trend after a lengthy “line” or narrow consolidation over the last 3 months.
It is also advisable to look for confirmation from the broader S&P 500 and the tech-heavy Nasdaq 100 index.
The S&P 500 broke resistance at 2200, signaling a primary advance with a target of 2300*. Rising Twiggs Money Flow again indicates that selling pressure has ended.
* Target medium-term: 2200 + ( 2200 – 2100 ) = 2300
The Nasdaq 100 recently set an all-time high after breaking resistance at its March 2000 high of 4700. Retracement twice respected the new support level and follow-through above 4900 would confirm another primary advance.
