Category: US & Canada

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S&P 500 finds support but Nasdaq warns caution

The S&P 500 found support at 1500 and is headed for a re-test of resistance at 1525/1530. Bearish divergence on 21-day Twiggs Money Flow warns of mild selling pressure. Breakout above resistance would negate this, while reversal below 1500 and the rising trendline would warn of a correction.

S&P 500 Index

Breach of the secondary trendline (above) would indicate a correction to test primary support at 1350. Recovery of 63-day  Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.
S&P 500 Index

* Target calculation: 1550 + ( 1550 – 1350 ) = 1750

The Nasdaq 100 is weaker, with bearish divergence on 13-week Twiggs Money Flow warning of a primary trend reversal. Breakout below primary support at 2500 would confirm, offering a target of 2100*.
Nasdaq 100 Index

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

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Scott Minerd: The Keynesian Depression | John Mauldin

Scott Minerd, Chief Investment Officer at Guggenheim Funds, writes:

Though some may be cheered by the relative policy successes this time around, at the current trajectory it will still take almost as long for total employment to fully recover as it did in the 1930s. While job loss was not as severe this time, the recovery in job creation has been much slower. Although nominal and real gross domestic production have returned to new highs on a per capita basis, we are still below 2007 levels. In the same way the Great Depression and the depressions before it lasted eight to 10 years, we will likely continue to see constrained economic growth until 2015-2016 roughly nine years after U.S. home prices began to slide.

Read more at Scott Minerd: The Keynesian Depression | John Mauldin – Outside the Box.

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Euro retraces

The Euro retraced to test support and the rising trendline at $1.32. Respect would indicate a primary advance with a target of $1.42*. 63-Day Twiggs Momentum well above zero suggests continuation of the primary up-trend. Failure of support at $1.32, however, would indicate a bull trap — with a target of $1.26.

Euro/USD

* Target calculation: 1.37 + ( 1.37 – 1.32 ) = 1.42

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S&P 500 caution

The S&P 500 retreated below 1525, heading for support at 1500. Failure of support would test the secondary trendline at 1475. Bearish divergence on 21-day Twiggs Money Flow warns of selling pressure, but may not be sufficient to start a full-blown correction.

S&P 500 Index

Breach of the secondary trendline at 1475 would indicate a test of primary support at 1350. Recovery of 63-day  Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.
S&P 500 Index

* Target calculation: 1550 + ( 1550 – 1350 ) = 1750

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Canada: TSX retreats

The TSX Composite retreated from resistance at 12800. Reversal of 21-day Twiggs Money Flow below zero warns of selling pressure. Breakout below 12650 would confirm a correction. Expect support at 12500.

TSX Composite Index
Rising troughs on long-term (13-week) Twiggs Money Flow, however, suggest that a base is forming. Breakout above 13000 would indicate a primary advance, offering a target of 15000*.
TSX Composite Index

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

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S&P 500 still cautious

The S&P 500 is testing short-term resistance at 1525 on the daily chart. Breakout would signal an advance to 1550. Bearish divergence on 21-day Twiggs Money Flow, however, warns of retracement to the rising trendline.

S&P 500 Index

The quarterly chart warns us to expect strong resistance at the 2000/2007 highs of 1550/1575. Recovery of 63-day  Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.
S&P 500 Index

* Target calculation: 1550 + ( 1550 – 1350 ) = 1750

The Nasdaq 100 is testing resistance at 2800 on the monthly chart. Breakout would suggest a primary advance to 3200* but bearish divergence on 13-week Twiggs Money Flow warns of a reversal. Breach of the rising trendline would strengthen the signal.
S&P 500 Index

* Target calculation: 2800 + ( 2800 – 2400 ) = 3200

I repeat my warning of the last few weeks:

These are times for cautious optimism. Central banks are flooding markets with freshly printed money, driving up stock prices, but this could create a bull trap if capital investment, employment and corporate earnings fail to respond.

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U.S.-EU Trade Deal: Obama Makes Risky Bet on Europe’s Future | Fiscal Times

David Francis writes:

The U.S. and European Union together already account for nearly half of global GDP and a third of global trade flows, with some $2.7 billion worth of goods and services exchanged daily. [A trade agreement] …..would increase trade between the partners by $120 billion within five years, according to a study by the U.S. Chamber of Commerce. At the same time, it would add some $180 billion to U.S.-EU gross domestic product. Estimates put forth by the European Commission suggest a new trade pact could increase annual GDP by 0.5 percent in the EU and 0.4 percent in the U.S. by 2027.

Read more at U.S.-EU Trade Deal: Obama Makes Risky Bet on Europe’s Future | Fiscal Times.

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Euro tests support

The Euro retreated below its new support level at $1.35 on the weekly chart. Expect a test of $1.32 and the rising trendline. Respect would indicate a primary advance with a target of $1.42*. Rising 63-day Twiggs Momentum (above zero) suggests continuation of the primary up-trend. Failure of support at $1.32, however, would indicate a bull trap — with a target of $1.27.

Euro/USD

* Target calculation: 1.37 + ( 1.37 – 1.32 ) = 1.42

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Cause of the 2007/8 crash and threatened double-dip in 2010

Here is the smoking gun. Note the sharp contraction in the US monetary base before the last two recessions and again in 2010. Monetary base (M0) is plotted net of excess bank reserves on deposit with the Fed, which are not in circulation. The Fed responded after the contraction had taken place, instead of anticipating it.

Monetary Base minus Excess Reserves

The long-term problem is that the monetary base should not be expanding at 10 percent a year. More like 3% to 5% — in line with real GDP growth.

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Time for U.S. to Disengage from North Korea Crisis | Cato Institute

Doug Bandow suggests:

Washington should begin contemplating, within earshot of Beijing, getting out of the way of its allies if the North continues to develop nuclear weapons. The message to China should be: if your client state continues its present course, you may face a nuclear-armed Japan. If that happens, blame your buddies in Pyongyang.

Read more at Time for U.S. to Disengage from North Korea Crisis | Doug Bandow | Cato Institute.

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