Canada’s TSX 60 index is headed for a test of the descending trendline and resistance at 730 — another bear market rally. 13-Week Twiggs Money Flow oscillating around the zero line indicates hesitancy. Respect of resistance would indicate another test of support at 650*.
* Target calculation: 650 – ( 730 – 650 ) = 570
A monthly chart of the S&P 500 index gives a clearer picture. Although the Nasdaq is advancing strongly, the S&P 500 is stuck below its long-term trendline. Note the similarity to March-May 2008 rally. Breakout above 1250 would be a bullish sign, similar to the May 2008 breakout above 1400, but retreat below the former resistance level (1250) would give a strong bear warning. Likewise, a 63-day Twiggs Momentum peak below the zero line would signal a strong primary down-trend.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
Dow Jones Industrial Average is testing resistance at 11700. Breakout would warn of a primary advance, but the market is prone to false signals because of excessive volatility and it would be prudent to wait for confirmation. Respect of 11700, or a false break above 11700, would re-visit support at 10600.
* Target calculation: 11000 – ( 12000 – 11000 ) = 10000
The S&P 500 is similarly testing resistance at 1230 on the weekly chart. Breakout would signal an advance to 1350, while respect would indicate another test of 1100. Breakout above the declining trendline on 13-week Twiggs Money Flow suggests nothing more than a secondary reaction (bear market rally). See the monthly chart.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
The Nasdaq 100 index, however, broke through 2350 and is headed for its July high. Bullish divergence on 13-week Twiggs Money Flow indicates reversal to an up-trend. Breakout above 2440 would confirm, offering a target of 2800*.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
It is not only the U.S. economy that is in peril right now. …Europe is struggling to prevent the sovereign debt problems of its peripheral Euro-zone economies from spiraling into a full-fledged banking crisis… Meanwhile, China and other large emerging economies… are beginning to experience slowdowns…Nor is renewed recession the only threat we now face. Even if a return to negative growth rates is somehow avoided, there will remain a real and present danger that Europe and the United States alike fall into an indefinitely lengthy period of negligible growth, high unemployment and deflation, much as Japan has experienced over the past 20 years following its own stock-and-real estate bubble and burst of the early 1990s.
via Roubini: Moving From the Post-Bubble, Post-Bust Economy to Growth | Credit Writedowns.
The euro is headed for a test of $1.40 against the greenback, on the hope that European banks will be re-capitalized after taking a haircut on the PIIGS bonds. There still appears to be some confusion — I suspect deliberate — as to who will pay, with German Finance Minister Wolfgang Schaeuble suggesting that banks first attempt to raise money from investors. Given the current state of financial markets, private investment will be scarce and European taxpayers are likely to end up with sizable stakes in a number of banks. Expect resistance at $1.40 to be followed by another test of support at $1.30*.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
The pound is similarly headed for resistance at $1.60. Respect would signal another test of $1.53.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
Canada’s Loonie and the Aussie dollar both benefited from a surge in commodity prices. Expect the CADUSD to find resistance at parity, followed by another test of support at $0.94.
* Target calculation: 1.00 – ( 1.06 – 1.00 ) = 0.94
The Aussie will find resistance between $1.02 and the descending trendline. Respect is likely and would indicate another test of $0.94.
* Target calculation: 1.02 – ( 1.10 – 1.02 ) = 0.94
The Aussie has formed a broad double bottom against its Kiwi counterpart. AUDNZD breakout above $1.28 would signal a primary advance to $1.32*.
* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32
Support is holding firm on the dollar-yen cross — with assistance no doubt from the BOJ. Expect a narrow range between 76 and 78.
The South African rand is testing support at R7.70 against the greenback, after penetrating its rising trendline. Probably because of all the visitors returning early from the Rugby World Cup. 🙂 Apparently they have invited the referee to run a series of clinics in South Africa on his novel interpretation of the forward-pass rule. I suggest that he decline — it could get violent. Failure of support would offer a target of R7.00*
* Target calculation: 7.70 – ( 8.40 – 7.70 ) = 7.00
“A number” of Fed officials taking part in the meeting thought that buying more securities would be “a more potent tool that should be retained as an option in the event that further policy action to support a stronger economic recovery was warranted,” the minutes showed.
Lehman Brothers’ collapse in 2008 was intended to intended to teach financial markets that they could not rely on an implicit government guarantee for too-big-to-fail (TBTF) banks. What bondholders learned was the opposite: never again would an institution of that size be allowed to collapse because of the de-stabilizing effect on the entire financial system.
Rescue of Dexia by French, Belgium and Luxembourg governments is the latest example. Bond-holders received 100 cents in the dollar/euro. Markets are just too fragile to consider giving bondholders a haircut. Denmark earlier had to back down from forcing haircuts on bondholders when Danish banks found themselves shut out of funding markets. [WSJ]
Frequent calls for TBTF institutions to be broken up have proved ineffective. Instead the problem has grown even larger with post 2008 rescue/take-overs of Countrywide and Merrill Lynch (BofA), Bear Stearns and WaMu (JPM), Lehman (Barclays), and Wachovia (Wells Fargo) reinforcing Willem Buiters’ survival of the fattest observation.
Proposals to reduce systemic risk through adoption of the Volcker Rule, which would prevent banks form trading for their own account, are proving difficult to implement. The 298-page first draft offers few clear definitions of restricted activities, instead calling for suggestions or feedback.[Bloomberg] Drafters should consider turning the rule around, offering a list of approved activities that banks can pursue, rather than attempting to define what they cannot. I have great respect for banks’ ability to find loopholes in any restrictive list.
The Rule on its own, however, cannot protect taxpayers from future bailouts. It does not prevent banks from over-lending if there is another bubble. There is only one solution: increase capital ratios — and apply similar ratios to securitized assets. Increases would have to be gradual, as some banks could respond by shrinking assets rather than raising capital — which would have a deflationary effect on the economy. Changes would also have to be sensitive to the economic cycle. The easiest way may be to set a long-term target (e.g. 20% Tier 1 + 2 capital by 2030) and leave implementation to the central bank as part of its monetary policy.
Together with the Volcker Rule, increased capital ratios are our best defense against a recurrence of the GFC.
We decided to take a further look at the highlighted statement above to see if we have hit a ‘significant bottom’ in the stock market after 3 consecutive daily rallies of 1.75% or more last week.
……A lot of people have been talking about this pattern. The implication is this represents a thrust off a low and the start of a significant move higher. History shows this has only been the case when this pattern results in a breakout of the previous range (see 1984). When this thrust results in a move back into a defined range (see 2002), it has little meaning. When the market only barely broke out (see 1974), the market churned sideways for months before moving higher.
Has the market’s trend changed? For now, the answer appears to be “no.” Until a breakout is established, we would not get that excited about the three consecutive daily rallies of 1.75% or more.
Source:
Bianco Research, LLC.
October 10, 2011
via Has The Stock Market “Thrusted” Off A Bottom? | The Big Picture.
Dow Jones Industrial Average broke its declining trendline Monday, surging strongly, but light volume indicates hesitancy on the part of buyers.
* Target calculation: 11000 – ( 12000 – 11000 ) = 10000
Asian stocks reacted with enthusiasm but Shanghai, after gapping up at the open, fell sharply, giving up most of its gains. The ASX 200 response was muted, with a narrow range and low volume indicating hesitancy from buyers. Reversal below Monday’s low of 4150 would signal another test of 3850. Failure of support would offer a target of 3600*.
* Target calculation: 3900 – ( 4200 – 3900 ) = 3600
Gordon W. Green Jr. and John F. Coder, former Census Bureau officials, wrote a report based on Census data that explored household incomes during and after the recession. They found that starting in June 2009, at the official end of the recession, up to June 2011, the inflation-adjusted median household income fell 6.7 percent to $49,909.
This is a significant drop from the 3.2 percent decrease experienced between Dec. 2007 and June 2009–the official period of the recession as determined by the National Bureau of Economic Research.
Researchers found a possible reason for this is a freeze in pay, which has remained stagnant or even dropped in many cases–a large number of people who lost their jobs during the middle or end of the recession remained out of work for months and took pay cuts in order to be hired again.
A separate study conducted by Henry S. Farber, an economics professor at Princeton, revealed that people who lost jobs in the recession and later found work earned an average of 17.5 percent less than they had in their old jobs.
