By JOSH BOAK, The Fiscal Times
August 11, 2012
Bowing to pressure from the conservative wing of his party, Republican Mitt Romney has picked House Budget Committee Chairman Paul Ryan as his vice presidential running mate, and ensured that the congressman’s controversial plan to transform Medicare into a voucher-type program will become a central issue in the presidential race.
The Euro retreated after encountering resistance at $1.2400/1.2450. Respect of the rising trendline, however, would confirm that the primary down-trend is losing momentum and a bottom is forming. Recovery above $1.2450 would strengthen the signal. Reversal below $1.2150 would warn of another down-swing — confirmed if primary support at $1.2050 is broken — with a target of $1.185.
* Target calculation: 1.215 – ( 1.245 – 1.215 ) = 1.185
Pound Sterling’s up-trend against the Euro continues on the Weekly chart. Respect of support at €1.255 would indicate an advance to €1.315*. Rising 63-day Twiggs Momentum is evidence of a strong primary up-trend.
* Target calculation: 1.285 + ( 1.285 – 1.255 ) = 1.315
Canada’s Loonie broke above parity, headed for a test of resistance against the greenback at $1.02. Long-term bullish divergence on 63-day Twiggs Momentum and recovery above zero suggest a primary up-trend.
The Aussie Dollar is similarly headed for a test of resistance at $1.08 against the greenback. Breakout would offer a long-term target of $1.20* but calls for RBA intervention to prevent further appreciation are growing. Professor Warwick McKibbin told The Australian Financial Review:
When a portfolio shift into Australian currency is observed, the exchange rate change should be completely offset so the shock only affects the money markets rather than the real economy. If the shock cannot be observed precisely then the central bank should “lean against the wind”, that is intervene to slow down the extent of appreciation of the exchange rate.
* Target calculation: 1.08 + ( 1.08 – 0.96 ) = 1.20
The Aussie retreated from resistance at R8.75 against the South African Rand and is testing support at R8.50. Failure of support would signal a primary down-trend with an initial target of $8.25*.
* Target calculation: 8.50 – ( 8.75 – 8.50 ) = 8.25
The Aussie broke medium-term resistance at ¥82.50 against the Japanese Yen, heading for a test of the upper range border at ¥88/¥90. The Australian Dollar/Japanese Yen has been a good reflection of global risk tolerance since 2009, oscillating between ¥72 and ¥90 as risk tolerance rises or falls. Rising 63-Day Twiggs Momentum and recovery above zero suggest a primary up-trend as the Aussie Dollar’s status as a reserve currency grows, attracting capital inflows.
10-Year Treasury yields are headed for a test of resistance at 1.70 percent after recovery above the descending trendline warned of a “bear trap” — actually a bull trap because yields are the inverse of price. Follow-through above 1.60 percent has confirmed, and breakout above 1.70 would signal an advance to 2.0 percent* — a bullish sign for stocks.
* Target calculation: 1.70 + ( 1.70 – 1.40 ) = 2.00
The TSX 60 continues in a rising broadening wedge consolidation rather than a trend channel. Thomas Bulkowski observes that these formations end with a downward breakout 73 per cent of the time. That would threaten primary support at 640 and a decline to 600*. A 13-week Twiggs Money Flow trough above zero, however, indicates buying pressure. Respect of support at 640 would suggest a rally to 720. And breakout above 720 would offer a target of 800*.
* Target calculation: 640 – ( 680 – 640 ) = 600
The S&P 500 is headed for a test of 1420 on the weekly chart. Breakout would signal an advance to 1570* — the 2007 high. The 13-week Twiggs Money Flow trough above zero indicates strong long-term buying pressure.
* Target calculation: 1420 + ( 1420 – 1270 ) = 1570
The Nasdaq 100 is headed for 2800*. A 63-day Twiggs Momentum trough above zero would confirm the primary up-trend. Breakout would offer a target of 3150*.
* Target calculation: 2800 + ( 2800 – 2450 ) = 3150
Stock markets are impacted by distortions arising from high-frequency trading algorithms as this article by SUZANNE MCGEE discusses. We really need to consider the benefits versus the costs of HFT. Benefits of HFT liquidity are vastly overstated: what use is an umbrella if withdrawn at the first sign of rain? The costs are far more than the additional +/- $2.5 billion — profits from HFT trading — that institutional and private investors pay for stocks each year. By far the greatest cost is the damage done to market efficiency and to investor trust. An efficient market requires accurate communication of pricing information to market participants. My belief is that HFT distorts this function. And the only reason it is encouraged by exchanges is the huge profits they make from it.
Even if Knight’s [Knight Capital] losses are as large as $300 million, that’s a drop in the bucket when set beside the $862 billion that was temporarily wiped off the value of the U.S. stock market in 2010. High-frequency trading systems and the algorithms they use, these advocates argue, add liquidity to the market, which is a Good Thing.
Well, not really. Not it results in a major crisis of the kind we saw two years ago and a slew of smaller trading anomalies, day after day, week after week, month after month on top of that. Less than two weeks ago for instance, traders reported seeing a bizarre “sawtooth” pattern of trading in a handful of large-cap stocks, including Coca-Cola KO and Apple AAPL. Their prices swung higher and lower with an uncanny degree of synchronicity, zooming higher every hour on the half-hour, and lower once more thirty minutes later. More algorithms, traders muttered gloomily to one another.
The Euro retreated from resistance at $1.24 to test support at $1.22. Downward breakout would test the 2010 low of $1.19. Declining 63-day Twiggs Momentum continues to indicate a strong down-trend.
* Target calculation: 1.23 – ( 1.27 – 1.23 ) = 1.19
Pound Sterling broke short-term support at €1.27 against the Euro, warning of a correction to €1.25. Respect of support at €1.25, however, would suggest a healthy up-trend.
Canada’s Loonie is testing parity against the greenback. Breakout would advance to $1.02. Recovery of 63-day Twiggs Momentum above zero would indicate a primary up-trend, while a break above $1.02 would confirm.
The Aussie Dollar retreated from resistance at $1.05*. Reversal below $1.045 would test the rising trendline but penetration below $1.03 is unlikely. Recovery of 63-day Twiggs Momentum above zero suggests a primary up-trend.
* Target calculation: 1.05 + ( 1.05 – 1.02 ) = 1.08
The Aussie Dollar respected support at R8.50 South African Rand before rallying to R8.75. Breakout is likely and would offer a target of R9.00*.
* Target calculation: 8.75 + ( 8.75 – 8.50 ) = 9.00
The Australian Dollar is consolidating mid-range (between ¥72 and ¥90) against the Japanese Yen. Breakout above ¥82.50 is likely and would test the upper range border, while reversal below ¥79.50 would test primary support. Recovery of 63-Day Twiggs Momentum above zero would strengthen the bull signal.
I enjoyed this comment on the NYtimes website by A Man from Poland in response to Paul Krugman’s criticism of Mitt Romney lavishing praise on the Polish economy. Especially because Krugman concludes: “Doesn’t anyone tell Romney to do his homework?”
Mr Krugman,
I see that you don’t know too much about situation in Poland.
Of course I agree that currency depreciation was one of main reasons of Poland’s relative resilience in the crisis.
But there were second very important reason – income tax cuts in 2008.
In 2008, the first time from 10 years we had income tax cut in Poland.
Till 2007 we had 19%, 30% and 40% progressive income tax rates. In 2008 19% tax rate was decreased to 18%, 30% was decreased to 18% and 40% tax rate (for the richest taxpayers) was reduced to 32%. So, we changed 19%-30%-40% progressive system into less progressive, lower income tax system 18%-32%.
In 2008 there was also social security tax reduction which additionally decreased labour cost in Poland.
So, thanks to income tax cuts and social security tax cuts we have maintained (roughly) employment rate and consumption level in Poland and it was second important reason of quite good situation in Poland.
The TSX 60 is in a rising broadening wedge consolidation rather than a trend channel. Downward breakout would threaten primary support at 640 and another decline, while penetration of the descending trendline would suggest that a bottom is forming. Rising 63-day Twiggs Money Flow also indicates that a bottom is forming — especially if we see recovery above zero.
