Category: UK & Europe

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October sell-off continues

  • DAX and FTSE break support, signaling a down-trend
  • China is bullish, but rest of Asia is bearish
  • US stocks are correcting, but continue to indicate a bull market
  • ASX testing primary support

The quarter-end sell-off has been exacerbated by weakness in Europe.

Germany’s DAX broke primary support at 8900/9000, signaling a (primary) down-trend. Reversal of 13-week Twiggs Money Flow below zero strengthens the bear signal. Target for the decline is 8000*. Recovery above 9000 is unlikely, but would warn of a bear trap.

Dow Jones Euro Stoxx 50

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie displays similar weakness, breaching primary support at 6400/6500. Target for the decline is 6000*. Recovery above 6500 is unlikely, but would warn of a bear trap.

FTSE 100 Index

* Target calculation: 6400 – ( 6800 – 6400 ) = 6000

China’s Shanghai Composite Index is holding above its new support at 2340/2350, but expect retracement to at least 2250 in response to US/European weakness.

Shanghai Composite Index

Japan’s Nikkei 225 Index broke medium-term support at 15500 and the rising trendline to warn of a correction. Reversal of 13-week Twiggs Money Flow below zero would strengthen the signal. Breach of 14800 would indicate a test of primary support at 14000.

Nikkei 225 Index

The S&P 500 is testing primary support at 1900. Declining 13-week Twiggs Money Flow warns of selling pressure. Reversal below zero would indicate a down-trend, offering a target of 1800*.

S&P 500 Index

* Target calculation: 1900 – ( 2000 – 1900 ) = 1800

CBOE Volatility Index (VIX) rose to above 20, indicating moderate risk, but nowhere near the levels typical of a bear market.

S&P 500 VIX

The ASX 200 broke support at 5250/5300, suggesting a test of long-term support at 5000. Declining 13-week Twiggs Money Flow below zero indicates strong selling pressure. Recovery above 5350 is unlikely, but would suggest that the correction is over.

ASX 200

* Target calculation: 5350 – ( 5700 – 5350 ) = 5000

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Anna Politkovskaya & Alexander Litvinenko

https://twitter.com/andersostlund/status/519381785080524801

Alexander Valterovich Litvinenko (1962 – 2006) was a fugitive officer of the Russian FSB secret service who specialised in tackling organised crime. In November 1998, Litvinenko and several other FSB officers publicly accused their superiors of ordering the assassination of the Russian tycoon and oligarch Boris Berezovsky. Litvinenko was arrested twice before fleeing to the United Kingdom where he was granted asylum.

Alexander_Litvinenko

During his time in London, Litvinenko wrote two books, Blowing Up Russia: Terror from Within and Lubyanka Criminal Group, wherein he accused the Russian secret services of staging the Russian apartment bombings and other terrorism acts in an effort to bring Vladimir Putin to power. He also accused Putin of ordering the murder in October 2006 of the Russian journalist Anna Politkovskaya.

On 1 November 2006, Litvinenko suddenly fell ill and was hospitalised in what was established as a case of poisoning by radioactive polonium-210, resulting in his death on 23 November. A British murder investigation pointed to Andrey Lugovoy, a member of Russia’s Federal Protective Service, as the prime suspect. The United Kingdom requested the extradition of Lugovoy, but the request was refused.

Extracted from Wikipedia.

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US job growth rebounds

  • US job growth rebounds, halting the correction
  • Gold and crude oil are falling
  • European stocks remain bearish
  • Asian stocks are bearish
  • US stocks continue to indicate a bull market

We are at the September quarter-end and stock weakness is likely to continue into October.

From the Wall Street Journal:

U.S. job growth rebounded in September and the jobless rate fell below 6% for the first time since mid-2008, suggesting the labor market is improving faster than previously thought. Nonfarm payrolls grew a seasonally adjusted 248,000 last month, the fastest pace since June, the Labor Department said Friday.

The S&P 500 broke downwards from its broadening wedge formation this week, warning of a correction to 1900. But Thursday’s long tail and Friday’s rally indicate buying support below 1950. Another test of 2000 is likely. Respect of resistance would warn of further weakness in October, while breakout would suggest a fresh advance; follow-through above 2020 would confirm.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains below 20, typical of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 found support at 3100, but this is unlikely to hold. Expect another test of primary support at 3000. Breach would signal a down-trend. Fall of 13-week Twiggs Money Flow below zero would strengthen the bear signal.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

Dow Jones Asia Index is headed for a test of 2800 on the weekly chart despite continued bullishness on the Shanghai Composite, reflecting strength in the US Dollar. Penetration of the rising trendline would strengthen the bear signal. Reversal of 13-week Twiggs Momentum below zero also signals a primary down-trend.

Dow Jones Asia Index

The ASX 200 found support at 5250. Recovery above 5350 and the descending trendline would suggest that the correction is over. But respect of resistance remains as likely and breach of 5250 would warn of a test of 5000/5050. Recovery of 21-day Twiggs Money Flow above zero would indicate short-term buying pressure.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

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DAX threatens bear trend

Germany’s DAX is retracing for another test of support at 9300 and 13-week Twiggs Money Flow retreat below zero, after a bearish divergence, warns of long-term selling pressure. Failure of support would warn of a primary down-trend, while breach of primary support at 9000/8900 would confirm. Respect of support is unlikely, but recovery above 9800 would suggest another advance.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie is also likely to test primary support at 6400/6500. Divergence on 13-week Twiggs Money Flow, however, is nowhere near as bearish as the DAX and stronger support is likely.

FTSE 100

* Target calculation: 6500 – ( 6900 – 6500 ) = 6100

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The Scottish Question Has Not Been Answered

Peter Geoghegan writes on the impact of further devolution in Scotland:

At present, England has no devolved legislature similar to Scotland’s. Instead, all laws for England are made at Westminster. Consequently, non-English MPs often vote on issues that only affect England. Any change to this policy would likely be fiercely resisted, particularly by Labour which has a large contingent of Scottish and Welsh MPs.

Labour, ironically, could be the biggest loser in Scotland’s referendum. It has traditionally been the party of central Scotland — of the post-industrial towns and villages that ring Glasgow and Edinburgh and hold much of the country’s 5 million people. In Glasgow, there was long been a saying that you could shave a monkey and get it elected on the Labour ticket. But in the referendum, almost 40 percent of Labour voters chose independence….

Read more at The Scottish Question Has Not Been Answered.

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Market turbulence

A Coincident Economic Activity Index above 0.2 indicates the US recovery is on track. Produced by the Philadelphia Fed, the index includes four indicators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries. Bellwether stock Fedex also suggests rising economic activity.

Coincident Economic Activity Index

But contraction of the ECB balance sheet by € 1 Trillion over the last two years has pitched Europe back into recession.

Weakness in Europe and Asia has the capacity to retard performance of US stocks despite the domestic recovery.

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Trouble in the East

Expect a continued arm wrestle between Russia and the West over influence in the Ukraine. Russians obviously view their shrinking sphere of influence as a threat to future security. But Vladimir Putin’s actions in Georgia, Moldova, Crimea and the Ukraine — straight from the KGB playbook — are the biggest threat to their security.

A war-weary US and pacifist Europe may be slow to react, but their capacity when provoked to subdue any threat from the East, through their combined economic might, is immense. One should not be fooled by Putin’s macho posturing. He is playing a very weak hand.

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S&P 500 broadening wedge

  • We are at the September quarter-end and can expect stock weakness to continue into October
  • The Dollar is rising
  • Gold and crude oil are falling
  • European stocks are bearish
  • Asian stocks are bearish despite China showing strength
  • US stocks reflect a bull market

Dow Jones Europe Index is testing primary support at 320. Breach would signal a down-trend. Follow-through below 315 would confirm. Penetration of the rising trendline and 13-week Twiggs Momentum peak below zero both strengthen the bear signal.

Dow Jones Europe Index

* Target calculation: 320 – ( 340 – 320 ) = 300

Dow Jones Asia Index broke primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Expect a test of support at 3000 (at the rising trendline). Reversal of 13-week Twiggs Momentum below zero would further strengthen the bear signal. Follow-through below 3000 would confirm a primary down-trend.

Dow Jones Asia Index

* Target calculation: 3100 + ( 3100 – 2800 ) = 3400

Shanghai Composite Index, however, continues to test resistance at 2350. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.

Shanghai Composite Index

Bear in mind that Dow Asia and Dow Europe are priced in USD and reflect strength in the US Dollar as well as weakness in local markets — though the two are closely connected.

The S&P 500 is consolidating around the 2000 level in a broadening wedge formation. Do not be surprised if the index rallies early next week, to test medium-term resistance at 2020. Fund managers are normally willing to support the market at quarter-end and lock in quarterly performance bonuses. But this is likely to be followed by weakness in October as they sell off non-performing stocks and increase cash holdings until new opportunities present themselves. Breakout below the broadening wedge — and penetration of both support at 1950 and the (secondary) rising trendline — would warn of a correction. A large volume spike from triple-witching hour on September 19th, however, has exaggerated weakness on Twiggs Money Flow. Breakout above 2020 would signal a fresh advance.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.

S&P 500 VIX

The ASX 200 is testing support at 5300/5350. Penetration of the rising trendline warns of a correction to 5000. Declining 13-week Twiggs Money Flow, below zero, after a long-term bearish divergence, also signals weakness. Breach of 5300 would confirm a test of 5000. Recovery above 5550 is unlikely, but would suggest another test of 5650.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

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How Laissez-Faire Made Sweden Rich | Libertarianism.org

From Johan Norberg:

…But in one century, everything was changed. Sweden had the fastest economic and social development that its people had ever experienced, and one of the fastest the world had ever seen. Between 1850 and 1950 the average Swedish income multiplied eightfold, while population doubled. Infant mortality fell from 15 to 2 per cent, and average life expectancy rose an incredible 28 years. A poor peasant nation had become one of the world’s richest countries.

…And so Sweden—a small country of nine million inhabitants in the north of Europe—became a source of inspiration for people around the world who believe in government-led development and distribution.

But there is something wrong with this interpretation. In 1950, when Sweden was known worldwide as the great success story, taxes in Sweden were lower and the public sector smaller than in the rest of Europe and the United States.

Read more at How Laissez-Faire Made Sweden Rich | Libertarianism.org.

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