Category: US & Canada

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S&P 500 and Nasdaq remain bearish

The S&P 500 remains in a slow up-trend as indicated by narrow oscillation of 63-day Twiggs Momentum above zero. A fall below zero, or downward breakout from the trend channel would warn of another correction. In the long term, breakout above 1420 is unlikely, but would signal an advance to 1570*.

S&P 500 Index Weekly Chart

* Target calculation: 1420 + ( 1420 – 1270 ) = 1570

The Nasdaq 100 is in a similar trend channel on the weekly chart. Respect of resistance at 2660 would suggest another test of primary support at 2440. Reversal of 13-week Twiggs Money Flow below zero would warn of a primary down-trend.

Nasdaq 100 Index

Bellwether transport stock Fedex also displays an upward trend channel on the weekly chart but remains bearish after completion of an earlier double top formation. Reversal below the former neckline at 88.00 would strengthen the bear signal, while failure of primary support at 84.00 would confirm.

Fedex

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Three Converging Factors May Slash Economic Growth By 71% | Daniel Amerman | Safehaven.com

An excellent historical analysis of this issue can be found in the working paper, “Debt Overhangs: Past and Present”, which was published by the National Bureau of Economic Research in April, 2012. Authored by Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff, it examines 26 different “debt overhangs” that have occurred around the world since 1800, with “debt overhang” being defined as public debt exceeding 90% of GDP for at least five years…..What Reinhart, Reinhart and Rogoff found was that the average duration of a debt overhang was 23 years, and that the end result was a 24% reduction in the size of national economies, compared to what they would have been if they had grown at their average growth rates when not crippled by large government debts.

via Three Converging Factors May Slash Economic Growth By 71% | Daniel Amerman | Safehaven.com.

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Dems Play Hardball, Threaten a New Recession

Josh Boak: Republican control of the House has left Democrats with the choice of either agreeing to continue the lower rates for wealthier Americans, or watching as they all expire and the country plunges back into a downturn. The Democrats would now prefer to hazard the hard landing. Their gambit depends entirely on the danger of a financial shock severe enough to force GOP lawmakers to back down, yet not so overpowering that it triggers a vicious slump…..

via Dems Play Hardball, Threaten a New Recession.

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Forex: Euro, Pound Sterling, Canadian Loonie, Australian Dollar, South African Rand and Japanese Yen

The Euro retraced to test its new resistance level at $1.23. Respect would confirm a decline  to test the 2010 low at $1.19*. Declining 63-day Twiggs Momentum continues to signal a strong down-trend. Breach of the 2010 low would become likely if the ECB indicated an intention to directly or indirectly purchase government bonds — and would suggest long-term weakness.

Euro/USD

* Target calculation: 1.23 – ( 1.27 – 1.23 ) = 1.19

Pound Sterling’s up-trend against the Euro is accelerating, with steep advances followed by short corrections. Rising 63-day Twiggs Momentum confirms. Target for the current advance is €1.295*.

Pound Sterling/Euro

* Target calculation: 1.255 + ( 1.255 – 1.215 ) = 1.295

Canada’s Loonie continues to weaken against the Aussie Dollar but long-term bullish divergence on 63-day Twiggs Momentum (and breach of the descending trendline) warns of reversal to an up-trend. Breakout above parity would confirm.

Canadian Loonie/Aussie Dollar

The Aussie Dollar broke resistance at $1.03 USD and is headed for a test of $1.05*. Recovery of 63-day Twiggs Momentum above zero would suggest a primary up-trend, but we first need a correction to form a higher low (trough).

Aussie Dollar/USD

* Target calculation: 1.03 + ( 1.03 – 1.01 ) = 1.05

The Aussie Dollar is testing resistance at R8.50 South African Rand after respecting support at R8.30. Breakout would offer a target of R8.70*.

Aussie Dollar/South African Rand

* Target calculation: 8.50 + ( 8.50 – 8.30 ) = 8.70

The Australian Dollar/Japanese Yen is a good reflection of global risk tolerance. Euphoric highs of 2007  were followed by blind panic in 2008/2009 before settling into a mid-range oscillation between ¥72 and ¥90 — suitable for range traders. The higher low in 2012 reflects a more bullish stance but we are a long way from breakout above ¥90. 63-Day Twiggs Momentum oscillating around zero mirrors the uncertainty.

Aussie Dollar/Japanese Yen

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Numbers Tell of Failure in the War on Drugs – NYTimes.com

If there is one number that embodies the seemingly intractable challenge imposed by the illegal drug trade on the relationship between the United States and Mexico, it is $177.26. That is the retail price, according to Drug Enforcement Administration data, of one gram of pure cocaine from your typical local pusher. That is 74 percent cheaper than it was 30 years ago.

via Numbers Tell of Failure in the War on Drugs – NYTimes.com.

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Compromises Are Needed to Boost Growth – WSJ.com

Gerald Seib: Most sensible people in Washington know exactly what kinds of compromises on the deficit, taxes, trade and entitlement programs are within reach to change the economic trajectory.

What’s needed is simply for both parties to accept that neither is likely to be in full command of the government after the fall election and perhaps for some time to come, and to move on to the compromises needed to end a policy paralysis that is exacting a real economic price….

This imperative is well embodied in a new study, titled “The Bargain,” soon to be released by Third Way, a centrist think tank. It lays out a series of seven big policy bargains the two parties could strike to address economic malaise….

via Compromises Are Needed to Boost Growth – WSJ.com.

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Canada: TSX 60 tests primary support

Canada’s TSX 60 index is headed for another test of primary support at 640. Failure of support would signal a primary decline to 560*. 63-Day Twiggs Momentum is rising but respect of the zero line would warn of a strong down-trend.

TSX 60 Index

* Target calculation: 640 – ( 720 – 640 ) = 560

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S&P 500 and Dow Industrials remain bearish

The S&P 500 continues to test resistance at 1370 but declining 63-day Twiggs Momentum warns of a primary down-trend. Breach of the rising trendline would indicate a primary down-swing; confirmed if support at 1270 is broken. Reversal of 63-day Twiggs Momentum below zero would strengthen the bear signal. Breakout above 1420 is unlikely, but would signal an advance to 1570*.

S&P 500 Index Weekly Chart

* Target calculation: 1420 + ( 1420 – 1270 ) = 1570

The Dow Industrial Average is in a similar position, with bearish divergence on 13-week Twiggs Money Flow warning of selling pressure. Reversal of TMF below zero would indicate a primary down-trend .

Dow Industrial Average Index

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A lack of money isn't the problem: it's time to shrink – The Drum – ABC News

Alan Kohler: Debt was built up through 30 years of current account imbalances after currencies were finally unshackled from the gold standard in 1971, and the depression of the 70s came to an end in 1982.

Central banks, principally the Federal Reserve, complied in the process of debt build-up by holding down interest rates and allowing asset prices to rise, keeping balance sheets in the black.

The credit crisis of 2007-08 brought asset prices down rapidly and rendered banks suddenly insolvent, so they had to be recapitalised by governments. Now the governments of Europe, the US and Japan are insolvent, and the only question is when the central banks will monetise their debt – that is, print more money and buy their debts…..

via A lack of money isn’t the problem: it’s time to shrink – The Drum – ABC News (Australian Broadcasting Corporation).

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Treasury yields continue to fall

10-Year Treasury yields are testing support at 1.45 percent. Breach would offer a target of 1.20 percent*. Declining yields suggest that money is flowing out of stocks and into bonds. Recovery above 1.70 percent is unlikely but would suggest another stock market rally.

10-Year Treasury Yields

* Target calculation: 1.45 – ( 1.70 – 1.45 ) = 1.20

Latest stats from the Fed show holdings of Treasury notes and bonds increased by $3.9 billion over the last week, which may have contributed to the decline. Holdings of (short-term) Treasury bills fell to $14.6 billion, leaving little room for further “Twist” operations — where the Fed swaps short-term holdings for long-term Treasuries.

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