Category: UK & Europe

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Market bullish despite Europe bank worries

  • S&P 500 advance to 2000 likely.
  • Europe warns of correction.
  • China further consolidation expected.
  • ASX 200 hesitant.

US market sentiment remains bullish, while Europe hesitates on Portuguese banking worries. As Shane Oliver observed: “Could there be a correction? Yes. Is it start of new bear mkt? Unlikely. Bull mkts end with euphoria, not lots of caution like there is now…”

The S&P 500 found support between 1950 and 1960, as evidenced by long tails on the last two candles, and is likely to advance to the psychological barrier of 2000. 21-Day Twiggs Money Flow recovery above the descending trendline would confirm that short-term selling pressure has ended. Expect retracement at the 2000 level, but short duration or narrow consolidation would suggest another advance. Reversal below 1950 is unlikely, but would warn of a correction to 1900 and the rising trendline.

S&P 500

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

CBOE Volatility Index (VIX) remains at low levels indicative of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 broke support at 3200/3230, warning of a correction to the primary trendline at 3000. Solvency doubts over struggling Portuguese Banco Espirito Santo have roiled European markets. Descent of 21-Day Twiggs Money Flow below zero indicates medium-term selling pressure. Recovery above 3230 is unlikely at present.

Dow Jones Euro Stoxx 50

* Target calculation: 3150 + ( 3150 – 3000 ) = 3300

China’s Shanghai Composite Index displays strong medium-term buying pressure, with 21-day Twiggs Money Flow troughs above zero. Follow-through above 2060 would indicate another test of 2090. Breach of primary support is unlikely at present, but would signal a decline to 1850*. Further ranging between 2000 and 2150 is expected — in line with a managed “soft landing”.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

The ASX 200 found support at 5450 and appears headed for another test of resistance at 5550. 21-Day Twiggs Money Flow oscillating around zero, however, continues to indicate hesitancy. Reversal below 5450 would signal another test of 5350, while breakout above 5550 would suggest a long-term advance to 5800*.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

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Coppola Comment: Creeping nationalisation

From Frances Coppola:

…the super-safe backstop offered to money funds by the Fed is only the latest in a long line of implicit government guarantees propping up the financial system. Far from ending government support of the financial system, the developments of recent years have actually made it MORE dependent on the state.

Markets, too, have become government-dependent. Markets watch central banks all the time, anticipating their actions and responding to their announcements. And exceptional monetary policy by central banks has impacted market functioning. QE reduced the supply of safe assets, raising their price, while the additional money flowing into markets as a result of QE blew up bubbles in various other classes of asset, both safe assets gold, commodities, fine art and above all real estate and high-yield assets. It is hard to say what market prices would be like now if no central bank were doing QE, and we are unlikely to find out any time soon: the US is withdrawing QE, but Japan is currently doing the largest QE programme it has ever done and the ECB may also soon be forced reluctantly to do some form of asset purchase programme. China has been doing yuan QE for a while, but if dollar liquidity becomes an issue it may be forced to repo out its USTs, which would reinforce the Fed’s ONRRPs and make control of dollar liquidity more difficult. And of course the Swiss have been quietly controlling the Swiss franc market for ages. To prevent the Swiss franc rising, they’ve done the largest QE programme in the world relative to the size of their economy….

Read more at Coppola Comment: Creeping nationalisation.

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Aussie Dollar: Should RBA ‘lean against the wind’?

The Euro rallied to resistance at $1.37 after testing primary support at $1.35 and the rising long-term trendline. Recovery above $1.37 would suggest a rally to $1.39/$1.40, but descending 13-week Twiggs Momentum remains below zero, warning of weakness. Breach of $1.35 is equally likely and would signal a decline to $1.31*.

Euro/USD

* Target calculation: 1.35 – ( 1.39 – 1.35 ) = 1.31

The Aussie Dollar is again testing resistance at $0.94. 13-Week Twiggs Momentum holding above zero suggests continuation of the up-trend. Follow-through above $0.95 would suggest a target of $0.97. Reversal below $0.92 is unlikely at present, but would warn of a decline to the band of support between $0.87 and $0.89.

Aussie Dollar

A monthly chart of the Euro against the Swiss Franc shows how the Swiss central bank intervened in 2011 to prevent further appreciation against the Euro and protect local industry. The Australian central bank faced a similar challenge in 2011, but from a different cause, with the Aussie Dollar rising strongly against the greenback on the back of a mining investment boom. The RBA sat on its hands and failed to “lean against the wind” as called for by Prof Warwick McKibbin. Local industry has suffered irreparable damage in the ensuing period.

Aussie Dollar

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Europe: Selling pressure

Dow Jones Euro Stoxx 50 is testing support at 3200/3230. Declining 21-day Twiggs Money Flow indicates medium-term selling pressure. Breach of 3200 and the rising trendline would warn of a correction and weakness in the primary up-trend. Recovery above 3300 is less likely, but would suggest another advance.

Dow Jones Euro Stoxx 50

* Target calculation: 3200 + ( 3200 – 3000 ) = 3400

DAX again retreated below the psychological barrier of 10,000. A sharp fall on 21-day Twiggs Money Flow indicates strong medium-term selling pressure. Expect further consolidation between 10000 and 9700. Failure of support would warn of a correction to the primary trendline at 9500. Recovery above 10000 is unlikely at present, but would indicate an advance to 10500*.

DAX

* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

The Footsie also shows selling pressure on 21-day Twiggs Money Flow. Expect another test of 6700. Recovery above 6870 is unlikely at present, but would signal an advance to 7200*.

FTSE 100

* Target calculation: 6800 + ( 6800 – 6400 ) = 7200

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One-size-fits-all alcohol policies fail to help problem drinkers |IEA

From the Institute of Economic Affairs:

The cornerstone policies of Britain’s alcohol strategy are failing to reduce heavy drinking amongst the most vulnerable. New research from the Institute of Economic Affairs outlines the significant flaws of advertising bans, licensing restrictions and higher taxes, which not only fail to help problem drinkers, but punish the majority of responsible consumers.

The government and health campaigners have long favoured policies which aim to reduce per capita alcohol consumption to reduce heavy and harmful drinking. This outlook is based on a blunt model devised in the 1950s, and ignores countless studies which have demonstrated that particular subgroups drink at extremely varied levels. Attempting to reduce a national average ignores the obvious: that heavy drinking amongst a minority drastically pushes up the average.

In Punishing the Majority, authors John Duffy and Christopher Snowdon examine how a relatively small number of drinkers consume a disproportionately large amount of alcohol, with close to 70% of alcohol consumed by one fifth of the population. Using several examples, the authors show the extent to which per capita consumption depends on the drinking patterns of a minority.

The paper calls for politicians and campaigners to wake up to the complex reasons behind problem drinking. Instead of favouring political interventions on price, availability and advertising, the health lobby should pursue harm-reduction and rehabilitation.

Read more at Punishing the Majority – The flawed theory behind alcohol control policies, by John C. Duffy and Christopher Snowdon | Institute of Economic Affairs.

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Ukraine should sell its gas pipeline to stabilize the region

From OilPrice.com

Gas supply, and the threat to that supply for Europe, is what has forced Russia to move aggressively on multiple fronts to defeat Ukraine in its efforts to modernize and westernize its economy, its future, and its way of life.

So, how to start the liberalization process? Ukraine has argued that its gas transportation system is a strategic asset. Business-minded people take issue with this interpretation, which ignores the commercial potential of the pipeline system. Now that we have come full circle in a long-brewing Ukraine-Russia gas war, perhaps the pipeline should be considered “strategic” — if not in the way the Ukrainian authorities have long understood. The pipeline system, worth $20 to $30 billion, can indeed play a strategic and tactical role in resolving Ukraine’s crisis with Russia, but only if it’s sold off.

Ukraine should sell 50 to 75 percent of it for cash to a consortium involving the EU, U.S. and Russia and operated by a U.S. business enterprise, preferably based in Houston. This can only happen if Russia agrees to remove troops and other proxies in eastern Ukraine and then works with Ukraine to secure the border and cease all low-intensity conflict efforts, including on the ground, and in cyberspace and the trade arena….

Read more at EconoMonitor : EconoMonitor » 5 Things Ukraine Must Do to Become Energy Independent.

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Europe: Mild selling pressure

DAX again retraced to test support at 9750/9800. A small decline on 13-week Twiggs Money Flow indicates mild (medium-term) selling pressure. Failure of support would warn of a correction to the primary trendline. Respect is less likely, but would suggest a fresh advance; confirmed by breakout above 10000.

DAX

* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

The Footsie shows similar selling pressure to the DAX, with a mild decline on 13-week Twiggs Money Flow. The long tail on last week’s candle suggests support at 6700 and the rising trendline. Recovery above 6900 would signal an advance to 7200*. But reversal below 6700 is as likely and would warn of a correction to primary support at 6400/6500.

FTSE 100

* Target calculation: 6800 + ( 6800 – 6400 ) = 7200

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Aussie Dollar threatens breakout, Euro tests support

The Aussie Dollar continues to test resistance at $0.94. Recovery of 13-week Twiggs Momentum above zero suggests continuation of the up-trend, testing resistance at $0.97. Reversal below $0.92 is unlikely at present, but would warn of a decline to the band of support between $0.87 and $0.89.

Aussie Dollar

The Euro respected primary support at $1.35 and the rising long-term trendline. Recovery above $1.37 would suggest a rally to $1.39/$1.40, but descending 13-week Twiggs Momentum crossed below zero, warning of weakness. Breach of $1.35 would signal a decline to $1.31*.

Euro/USD

* Target calculation: 1.35 – ( 1.39 – 1.35 ) = 1.31

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