Dow Jones Industrial Average reversed below short-term support at 12000. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure — and a correction to test primary support at 10600. Reversal (of TMF) below zero and follow-through (of DJIA) below 11900 would strengthen the signal.
Respect of the descending trendline on Canada’s TSX 60 weekly chart indicates another test of primary support at 645. Failure would signal a primary decline to 575*. Breach of the zero line by 63-day Twiggs Money Flow would warn of rising selling pressure. Breakout above resistance at 715 is unlikely but would flag that the primary down-trend has ended.
* Target calculation: 645 – ( 715 – 645 ) = 575
Dow Jones Industrial Average is testing resistance at 12300. Breakout would signal a primary advance to 13400 and an end to the bear market. Rising 63-day Twiggs Momentum is encouraging but will only be significant if retracement respects the zero line.
* Target calculation: 12300 + ( 12300 – 11200 ) = 13400
The Nasdaq 100, however, displays a large bearish divergence on 13-week Twiggs Money Flow, warning of selling pressure. Reversal below 2040 would confirm a primary down-trend. Breakout above 2400 is less likely, but would suggest an advance to 2800*.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
The S&P 500 index recovered above medium-term support at 1220/1250, with a short surge in buying pressure, but the situation remains precarious. Breakout above 1300 would indicate that the threat of another bear market has passed, but reversal below 1160 remains as likely — and would warn of another test of primary support at 1100/1080.
The situation is similar to the attempted recovery above 1400 [now here] in 2008. Reversal below medium-term support [1400] in that case tipped us into a bear market.
Investors have now pulled more than $130 billion out of mutual funds that invest long term in United States stocks, since May 1.
…..In the six months ending October 31, $114.8 billion already had been pulled out of U.S. stock funds. The peak was in August, when Standard & Poor’s downgraded the rating of U.S. government debt. That month $26.3 billion was pulled out. But the pullout has stayed above $14 billion every month since.
The euro is likely to re-test primary support at $1.32 against the greenback. Declining 63-day Twiggs Momentum, below zero, warns of continuation of the primary down-trend. Breach of support would indicate a primary decline to $1.22*.
* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22
Sterling rallied off primary support at $1.53/$1.54 against the greenback but 63-day Twiggs Momentum again warns of a primary down-trend. Failure of support would offer a target of $1.46*.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
Canada’s Loonie is headed for another test of resistance at $1.01 against the greenback. Declining 63-day Twiggs Momentum, however, continues to warn of a primary down-trend. Respect of resistance is likely, and would signal another test of primary support at $0.95. Declining commodity prices also favor a down-trend.
* Target calculation: 0.95 – ( 1.01 – 0.95 ) = 0.89
The Aussie Dollar appears stronger than the Loonie, which is unusual. Both are affected by commodity prices, but the Aussie tends to be more volatile than its Canadian counterpart. Obviously, higher interest rates in the Southern hemisphere are an attraction. Again, 63-day Twiggs Momentum warns of a primary down-trend. And reversal below parity would warn of another test of primary support at $0.95.
* Target calculation: 0.95 – ( 1.07 – 0.95 ) = 0.83
The greenback has strengthened sharply against the South African Rand and Brazilian Real. Both volatile, resource-rich currencies are likely to re-test their recent highs: the rand at R8.50 and the real at 1.90 against the dollar.
The greenback shows strong bullish divergence against Japan’s yen on 63-day Twiggs Momentum, warning of a reversal. Breach of the long-term descending trendline would strengthen the signal. Breakout above ¥80 would confirm.
Citigroup chief economist Willem Buiter:
There really is no politically feasible route back to sustained economic growth through monetary and/or demand stimulating policies for the EA, the UK, the US and Japan, for many years to come. As regards demand stimulus, expansionary fiscal policy will not be punished by the markets to the point of being self-defeating for all EA member states except for Germany (which will not do it on any significant scale for domestic political reasons). The US also may be technically able to use fiscal expansion to stimulate demand, but even if markets continue to be tolerant, political gridlock makes it impossible. Expansionary monetary policy is at the end of its rope in the US and Japan. The UK could cut the official policy rate by 50 bps and the ECB by 125 bps, and then they too are restricted to quantitative easing (QE), which I consider to be ineffective.
via Buiter: no politically feasible route to sustained growth for many years to come | Credit Writedowns.
Just as the United States was not the only country posting a large current account deficit, so too it was not the only country that experienced asset price booms. Figure 2 shows that countries with large current account deficits in 2006 also tended to have larger house price increases. Of course, there are exceptions. For example, China has experienced rapid house price appreciation despite its enormous current account surplus. But, in general, house price appreciation and current account deficits appear to have been positively associated across many countries.
via FRBSF Economic Letter: Asset Price Booms and Current Account Deficits (2011-37, 12/5/2011).
Colin Twiggs: ~ There appears to be a general rule that large current account deficits lead to asset price booms. But to prove the rule researchers need to address why Japan experienced a massive asset price boom in the 1980s, and why China experienced a similar boom over the last decade, when both were running current account surpluses.
The Federal Reserve should set a “nominal target” for growth in the nation’s gross domestic product that is well above its current low rate for coming out of a recession, said Christina Romer, now an economics professor at the University Of California, Berkeley.“One thing I think it would do is pack a really big expectations wallop,’’ said Romer, speaking at the Super Bowl of Indexing wealth management conference here. “A new operating strategy is something that could really break through and affect people’s behavior.” Such a “new operating strategy” is needed to get the economy on the kind of course normally seen after a recession. In the first nine quarters after the 1982 version, the economy grew at an annual rate of 6.3 percent. In the first nine quarters of this edition, the rate has been 2.4 percent, barely at the nation’s historical rate of growth. And if a new approach is not taken, it could be decades before the nation is back at full employment.
via Romer: Expectations Wallop Needed to Avert 40-Year Recovery.
The TSX 60 index is headed for a test of the descending trendline and resistance at 720 on the weekly chart. Upward breakout would signal a primary advance to 790* and the end of the bear market. Respect of zero by 13-week Twiggs Money Flow would strengthen the signal, indicating strong buying pressure.
* Target calculation: 720 + ( 720 – 650 ) = 790
