Many investors are entering this week with fresh hopes the worst is over, after last week’s sudden stock-market rebound. But history suggests that in times of market turmoil, there is a risk that big, sudden gains like last week’s will prove temporary respites before stocks fall again. Head-snapping volatility, both steep drops and sharp gains, most often comes in times of market trouble. It suggests that, despite the bounce last week, the market isn’t healthy, says economic historian Richard Sylla of New York University’s Stern School of Business. “Financial markets become more volatile in periods of stress. People don’t know which way things are going to go, so you get these big up and down movements as people pile in and get out,” he says.
TSX 60 finds support
Canada’s TSX 60 index found support between 620 and 650. A rally to test resistance at 730 is indicated, but the primary trend is down and 13-week Twiggs Money Flow continues to signal selling pressure. Reversal below 650 would warn of a decline to 580*.
* Target calculation: 650 – ( 720 – 650 ) = 580
NASDAQ bullish divergence
NASDAQ 100 index respected primary support at 2040 before rallying strongly on the weekly chart. Bullish divergence on 13-week Twiggs Money Flow indicates buying pressure. Breakout above 2340 would complete a double bottom. Reversal below 2000 is less likely, but would warn of a decline to 1700*. A word of caution: we are in a highly volatile market — do not act on signals without confirmation from other indexes.
* Target calculation: 2000 – ( 2300 – 2000 ) = 1700
Fedex reflects slowing economy
A 30 percent decline on the Fedex weekly chart reflects the slowing rate of economic activity. Recovery above resistance at $70 suggests another bear market rally, but the primary trend is down. Declining 13-week Twiggs Money Flow, below zero, indicates long-term selling pressure.
* Target calculation: 70 – (80 – 70 ) = 60
The weekly chart of Deutsche Post AG indicates similar weakness in Europe. We may see a rally test resistance at €11.00 but the primary trend is down and reversal below €9.00 would offer a target of €7.00*.
* Target calculation: 9 – ( 11 – 9 ) = 7
IMF stress tests China/Australia bust – macrobusiness.com.au
I don’t wish to be too alarming. These are stress tests and scenarios not yet reality. But, there is logic in the thought that we currently face the possibility of the final two scenarios happening simultaneously. That is, a Western recession triggered by European and US austerity (not to mention financial tumult) and a Chinese real estate pop.
via IMF stress tests China/Australia bust – macrobusiness.com.au | macrobusiness.com.au.
Mutual Funds Dragged Down by Global Economic Unease – NYTimes.com
In the short term, though, fund investors have lost a lot. The average domestic stock fund in Morningstar’s database fell 16.2 percent in the third quarter.
….International stock funds, down 18.3 percent, fared worse than domestic ones and were dragged down by a 23.7 percent decline in Europe portfolios.
via Mutual Funds Dragged Down by Global Economic Unease – NYTimes.com.
“It’s Hard To Be Optimistic”: Political Ideology Blocking Good Policy – Michael Spence
“It’s hard to be optimistic,” says NYU professor and Nobel laureate Michael Spence. “There’s huge disagreements. Important policy issues are being held hostage to other things.” – Yahoo Finance from September 23, 2011.
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U.S. Consumer Credit Fell $9.5 Billion in August, Biggest Drop in a Year – Bloomberg
Consumer credit in the U.S. unexpectedly dropped in August by the most in over a year. The $9.5 billion decrease followed an $11.9 billion increase the previous month, the Federal Reserve said today in Washington. Non-revolving credit, which includes student loans and financing for automobile purchases, slumped by the most in three years. Decreasing credit shows American households are either continuing to pay down debt or lack the confidence to boost spending on non-essential goods.
via U.S. Consumer Credit Fell $9.5 Billion in August, Biggest Drop in a Year – Bloomberg.
One down five to go
I say this rather flippantly as we are in the middle of a bear market, and I do not believe we are ready, but a reader asked what it would take to signal a bull market. My answer: three decent blue candles on the weekly chart followed by a correction of at least two red candles that respects the preceding low. The weekly chart of the S&P 500 index displays a blue candle with a long tail, signaling buying support. That would qualify as candle #1.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
There is no supporting divergence on 13-week Twiggs Money Flow to signal a change in the underlying selling pressure. Reversal to an up-trend is unlikely but would take a rally of at least 3 blue candles to break resistance at 1250 followed by a correction that finishes above 1100 — and re-crosses 1250. What is more likely is a failed attempt or false break at 1250 followed by penetration of support at 1100, signaling a decline to 1000/950*.
Payrolls Rise as Striking Workers Return – WSJ.com
Nonfarm payrolls rose by 103,000 in September as the private sector added 137,000 jobs, the Labor Department said Friday in its survey of employers. Payrolls data for the previous two months were revised up by a total 99,000 to show 57,000 jobs were added in August and 127,000 jobs in July. However, the September payrolls data was boosted by a one-time event: 45,000 telecom workers returning to their jobs following a strike at Verizon Communications Inc. in August.
Highlighting the stubborn weakness of the labor market, the unemployment rate—which is obtained from a separate household survey—was stuck at 9.1% for the third month in a row.