Category: US & Canada

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S&P 500 and Nasdaq selling pressure

The S&P 500 is oscillating between 1485 and 1530. I avoided using the word “consolidating” because that implies a degree of calm. Far from it. Bearish divergence on 21-day Twiggs Money Flow continues to warn of medium-term selling pressure. Reversal below 1485 and the rising trendline would indicate a correction. Breakout above 1530 is less likely but would offer a target of 1575*.

S&P 500 Index

* Target calculation: 1530 + ( 1530 – 1485 ) = 1575

On the monthly chart we can see that a correction below the secondary trendline would target primary support and the primary trendline between 1350 and 1400. A 63-day Twiggs Momentum trough above zero would indicate continuation of the up-trend, while retreat below zero would suggest a primary reversal.
S&P 500 Index
The VIX Volatility Index remains close to recent lows at 0.15. This does not provide much long-term reassurance: the VIX was at similar levels in May 2008. Breakout above the recent high at 0.20 would be a warning sign.
VIX Index
The Nasdaq 100 displays a bearish divergence on both 63-day Twiggs Momentum and long-term (13-week) Twiggs Money Flow. Reversal below the rising trendline would strengthen the signal. While breach of primary support at 2500 would signal a reversal.
Nasdaq 100 Index

* Target calculation: 2500 – ( 2900 – 2500 ) = 2100

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John Howard interview: Assault weapons are a public safety issue not a left/right issue [video]

John Howard, the conservative former prime minister of Australia, says that pro-gun advocates in the United States are wrong to oppose an assault weapons ban like the one he pushed for after a 1996 mass shooting because public safety is not a “liberal/conservative issue.”

Howard told CNN’s Fareed Zakaria that he felt “horror and shock” after a gunman killed 35 people in Tasmania on April 28, 1996.

Many within his own party opposed the newly-elected PM when he proposed a ban on private ownership of assault weapons in Australia. But statistics since then have proved him right. According to CNN, in the 18 years leading up to 1996 there were 13 gun massacres in Australia; since 1996 when the law was passed there has not been a single incident.

Published on 17 Feb 2013

P.S. Gun ownership is an emotive issue in the US. We encourage open considered debate but believe that nothing is gained by people “shouting” at each other. Any emotive posts of that ilk will end up in the trash can.

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Matt Busigin On Peak Capitalism | Business Insider

Joe Weisenthal presents the following two charts to illustrate how government is coping with falling manufacturing wages:

You’ve probably seen this chart many times, which shows wages declining as a percent of GDP over the last few decades.

Wages as a share of GDP

But things look a tad different when you look at wages PLUS government transfer payments (predominantly entitlement programs) as a share of GDP.

Wages plus entitlements as a share of GDP

What the writer fails to recognize is that lifting government welfare payments is not a solution. It is part of the problem. Increasing transfer payments encourages welfare dependancy and hinders the adaptive process that allows capitalism to adjust to new challenges.

Eventually the tail begins to wag the dog, with welfare dependents voting themselves increases. Economic stagnation evolves into economic deterioration, hindering new capital formation with excessive red tape and a rising welfare burden.

…..The road to hell is paved with good intentions.
via Matt Busigin On Peak Capitalism – Business Insider.

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Number for the month is 178,171

The number of containers (TEUs) that arrived loaded but were returned empty from the Port of Los Angeles during January 2013 is 178171*. That is 53 percent of all inbound containers are returned empty.

As I have said before, those containers are not really empty:

Shippers attempt to fill containers on their return journey, even at super-low rates, in order to offset the cost of completing the round-trip. Empty containers indicate failure to locate manufactured goods that can compete in these export markets. This affects not only the shipper, but the entire economy. Those containers leaving the West Coast are not really empty. They contain something far more valuable than the goods being imported. They contain manufacturing jobs — and the infrastructure, skills and know-how to support them.

In 2011, when President Obama announced his jobs program, empty outbound containers were running at 48 percent.

* 337,428 loaded inbound minus 159,257 loaded outbound

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US & Asia: Contrasting economic activity

While Fedex broke through long-term resistance at $100, signaling rising activity in North America….
Fedex
The Harpex index of container shipping (charter) rates, primarily for movement of finished goods, is close to its 2009 low. There is no indication of a resurgence in exports between Asia and the West.
Harpex Container Index

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The Sequester Will Be Good for the Economy | Cato Institute

Jeffrey Miron argues that we should use cost-benefit analysis to evaluate government expenditure:

…even if transfers help stimulate consumer spending, their net effect on the economy is unclear. This implies that whether the sequester will harm or help the economy depends on whether cost-benefit considerations can justify the existing level of government expenditure. And on this question, the answer is clear. Across all categories, federal expenditure is far greater than necessary to achieve the legitimate goals of government intervention.

Read more at The Sequester Will Be Good for the Economy | Cato Institute.

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Analysis: Bond managers fret junk bond rally is losing steam | Reuters

Jennifer Ablan and Sam Forgione at Reuters explain why Dan Fuss, vice chairman and portfolio manager at Loomis Sayles, which oversees $182 billion in assets, is slashing exposure to high-yield bonds:

Fuss and others worry the Fed’s easy money policy – short-term interest rates held at effectively zero and a bond-buying program known as quantitative easing – will soon foster inflation, a bond manager’s biggest fear. That would drive up interest rates, so bond prices, which move in the opposite direction to rates, would fall.

Read more at Analysis: Bond managers fret junk bond rally is losing steam | Reuters.

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Forex: Euro and Sterling retreat while Aussie Dollar rebounds

The euro broke medium-term support at $1.32 and the rising trendline against the greenback. While this indicates trend weakness it does not necessarily mean reversal to a primary down-trend. Completion of a 63-day Twiggs Momentum trough above zero would suggest that the trend is intact — and an advance to $1.42* is on the cards.
Aussie Dollar/USD

* Target calculation: 1.36 + ( 1.36 – 1.30 ) = 1.42

Pound sterling broke long-term support at $1.53 against the greenback, offering a long-term target of $1.43*. Fall of 63-day Twiggs Momentum below -5% (its 2011 low) would strengthen the signal.
Aussie Dollar/USD

* Target calculation: 1.53 – ( 1.63 – 1.53 ) = 1.43

Against the euro, the pound is testing support at €1.15. 63-day Twiggs Momentum well below zero suggests a strong down-trend. Failure of support would offer a target of the 2011 low at €1.10.
Aussie Dollar/USD

The Aussie Dollar respected primary support at $1.015. Recovery above $1.03 and the declining trendline would suggest another rally to test $1.06. Reversal below $1.02 would warn that primary support is under threat.

Aussie Dollar/USD
Failure of primary support would offer a target of $0.96*. Oscillation of 63-day Twiggs Momentum close to zero, however, suggests a ranging market.
Aussie Dollar/USD

* Target calculation: 1.01 – ( 1.06 – 1.01 ) = 0.96

The Canadian Loonie by contrast is in a strong primary down-trend against the greenback, headed for a test of $0.96. Falling 63-day Twiggs Momentum suggests that medium-term support at $0.97/$0.98 is unlikely to hold.
Aussie Dollar/USD
The US dollar has broken its long-term declining trendline against the Japanese Yen, suggesting that the 30-year decline is over and the greenback likely to appreciate for the foreseeable future. Follow-through above ¥100 would confirm, offering a target of ¥120*.
Aussie Dollar/USD

* Target calculation: 100 – ( 100 – 80 ) = 120

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S&P 500 breaks support at 1500

The S&P 500 broke support at 1500 and is headed for support at 1475.

S&P 500 Index

On the weekly chart we can see that a correction below 1475 would target support at 1425 (the secondary trendline). Only primary support at 1350, however, would signal a reversal. A 63-day Twiggs Momentum trough above zero would indicate continuation of the up-trend, while retreat below zero would suggest a primary reversal.

S&P 500 Index

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Canada: TSX edges lower

The TSX Composite found support at 12600/12650 on the daily chart. Breakout above 12800 would signal a fresh advance, while reversal below 12600 would warn of a correction. Expect support at 12500 and a 21-day Twiggs Money Flow trough at zero would indicate medium-term buying pressure. Rising troughs on 13-week Twiggs Money Flow (not shown) suggest that a base is forming. The long-term target for a breakout above 13000 would be 15000*.

TSX Composite Index

* Target calculation: 13000 + ( 13000 – 11000 ) = 15000

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