US & Canada Archives - Page 73 of 174

August 26, 2014

Dow signals fresh advance

Dow Jones Industrial Average recovered above 17000, signaling a fresh advance. Follow-through above 17150 would confirm a target of 17500*. Leveling off of 21-day Twiggs Money Flow in recent days, however, indicates (short-term) resistance. Reversal below 16950 is unlikely, but would warn of a test of 16750.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

The S&P 500 is again testing resistance at 2000. Breakout would offer a target of 2250*. Recovery of 13-week Twiggs Money Flow above its recent (July 2014) high would confirm buying pressure. Reversal below 1950 is unlikely, but would warn of another test of (primary) support at 1900.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

Declining CBOE Volatility Index (VIX) readings suggest continuation of the bull market.

VIX Index

The Nasdaq 100 broke through the psychological level of 4000. Expect retracement to test the new support level. Respect is likely and would confirm another advance. Recovery of 13-week Twiggs Money Flow above its recent (July 2014) high would confirm buying pressure. Reversal below 4000 is unlikely but would warn of a test of support and the rising trendline at 3750.

NASDAQ 100

* Target calculation: 4000 + ( 4000 – 3750 ) = 4250

August 25, 2014

Euro, Yen plunge against Dollar

The Euro broke support at $1.33, signaling a further decline against the Dollar with a target of $1.30*. Falling 13-week Twiggs Momentum, below zero, warns of a strong down-trend. Recovery above $1.35 is most unlikely, but would suggest that the down-trend is slowing.

Euro/USD

* Target calculation: 1.35 – ( 1.40 – 1.35 ) = 1.30

The recent rally of the Euro against the Russian ruble has faltered. An economic contraction and rising tensions over Eastern Ukraine both contributed. The Euro remains in an up-trend and recovery above RUB 49 would suggest another attempt at the previous high of RUB 51. But failure of support at RUB 46 would signal a primary down-trend. 13-Week Twiggs Momentum oscillating close to zero reflects current uncertainty.

Euro/Rouble

Vladimir Putin is attempting to exploit fault lines in the US/European alliance, targeting the powerful European farming and motor industry lobbies. Unauthorized incursions into Ukrainian territory by his white-painted “aid convoy” are another example, where the infringement is so apparently inoffensive that Angela Merkel will find it difficult to convince her European allies to escalate sanctions further. Failure to react will merely embolden Putin to conduct further minor infringements in defiance of the EU, confident in their response, until the Ukraine suffers “death by a thousand cuts”.

Putin

Only if the US/EU adopt an aggressive escalation, as suggested here on Defence & Freedom, are they likely to contain Russian aggression.

“…a defensive and reactionary game plan makes one predictable. The very existence of a crisis should be understood as a hint that someone used this predictability to predict the outcome of a produced crisis — and arrived at the conclusion that it’s a good idea. Aka failure of deterrence.”

Japan

As with the Euro, the Japanese Yen is also weakening against the Dollar. The Greenback broke resistance at ¥103.50, signaling a rally to test the 2013 high. Follow-through above ¥104 would confirm. Rising 13-week Twiggs Momentum above zero strengthens the signal. Reversal below ¥103 is unlikely, but would warn of another test of primary support at ¥101.

USD/JPY

Australia

The Aussie Dollar, however, is holding its own — ranging between $0.92 and $0.95 against the US Dollar. The narrow band and 13-week Twiggs Momentum holding above zero both suggest continuation of the up-trend. Breakout above $0.95 would suggest a target of $0.97. Reversal below $0.92 is unlikely at present, but would warn of a decline to the band of support between $0.87 and $0.89.

Aussie Dollar

The ASX 200, retracing slightly from resistance at 5650, is also influenced by strong foreign investment flows. Indications are predominantly bullish, including 21-day Twiggs Money Flow forming troughs above zero. Follow-through above 5660 would signal another advance, with a medium-term target of 5850. Reversal above 5550 is unlikely, but would warn of another test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

August 24, 2014

Aggressive defence | Defence and Freedom

From defence_and_freedom@gmx.de:

Imagine an unfolding crisis, and your government has confidence in its expectations for what’s going to happen next. Couldn’t a couple aggressive*, unexpected actions ruin the opposing sides’ plans, crush their timetable, make their political calculations obsolete, destroy their confidence in their ability to predict your government’s reactions and to predict the costs of the crisis?

Couldn’t such a disruption make a quite acceptable diplomatic settlement more likely? — I’m all for peace and free love and stuff**, but I distrust the notion that escalation is always a bad thing. An escalation to ruin some aggressor’s day may be the right thing to do. To have and obey a defensive and reactionary game plan makes one predictable. The very existence of a crisis should be understood as a hint that someone used this predictability to predict the outcome of a produced crisis – and arrived at the conclusion that it’s a good idea.
A.k.a. failure of deterrence.

* “aggressive”, NOT “aggression against a peaceful country
** Similarly, I don’t think “war as last resort” makes much sense.

August 22, 2014

Putin antics fail to impress markets

For all his macho posturing, Vladimir Putin has demonstrated an inability to move financial markets with his antics in Eastern Ukraine. His latest incursion towards Luhansk, with white-painted military trucks bearing aid to the rebel-held city, unchecked by the Red Cross, passed barely noticed. Instead markets are intently focused on nuances from a 68-year old Jewish mum at Jackson Hole, who also happens to chair the Federal Reserve.

I would have loved to call Janet Yellen a “grandmother”, but son Robert Akerlof — himself a PhD in Economics — does not claim any offspring on his CV. The apple doesn’t fall far from the tree. Husband, George Akerlof, is a Nobel prize-winning economist and professor emeritus at University of California, Berkeley.

The image below highlights the differences between the Fed and the ECB:

European unemployment is nearly twice the rate in the U.S.: http://t.co/ELXH1YcCcw pic.twitter.com/i5FQ1YvXBk

— Bloomberg News (@BloombergNews) August 22, 2014

The Fed’s more stimulatory approach has paid dividends in terms of economic growth and employment while inflation expectations remain muted. The inflation breakeven rate — 10-year Treasury yield minus the yield on equivalent inflation-indexed securities — continues to range between 2.0% and 2.50%.

Inflation breakeven rate

The ECB’s more austere approach, on the other hand, has caused a world of pain.

Market update

S&P 500 tests 2000.
VIX continues to indicate a bull market.
DAX hesitant rally.
China bullish.
ASX 200 faces strong resistance.

The S&P 500 hesitated after making a new high on Thursday, but there was no dramatic fall in response to news from Eastern Ukraine. Expect retracement towards 1950, followed by another test of 2000. 21-Day Twiggs Money Flow is likely to re-test the zero line, but respect would indicate strong buying pressure. Breach of support at 1900, warning of a reversal, remains unlikely.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

Declining CBOE Volatility Index (VIX) indicates low risk, typical of a bull market.

S&P 500 VIX

Germany’s DAX rallied above 9300 on the weekly chart, but 13-week Twiggs Money Flow warns of continued selling pressure. Reversal below support at 8900/9000 would warn of a primary down-trend.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

Shanghai Composite Index is testing resistance at 2250. Breakout would confirm a primary up-trend, signaling an advance to 2500*. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Respect of resistance, however, would suggest further consolidation.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

Tall wicks on ASX 200 daily candles indicate strong resistance at 5650. Respect would suggest retracement to 5550, while follow-through would be a strong bull signal, suggesting an advance to 5850*. Another 21-day Twiggs Money Flow trough above zero would indicate long-term buying pressure. Reversal below 5450 is unlikely, but would warn of a test of primary support.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

August 22, 2014

Bank Watch: US Tsy’s OFR Finds Risk Weighting Has No Clothes | MNI

Denny Gulino writes on recent research commissioned by Treasury Department’s Office of Financial Research (“OFR”) to investigate the validity of using risk-weightings to determine bank capital requirements:

On risk weighting, OFR commissioned researchers Paul Glasserman at Columbia University and Wanmo Kang of the Korea Advanced Institute of Science and Technology to examine the subject from the ground up. As much as the practice has been incorporated in regulatory parlance, they were able to find very little other research on the validity of the weighting methodology.

“Risk weights implicitly assign prices in terms of additional capital to asset categories and thus inevitably create incentives for banks to choose some assets over others,” they wrote.

“Surprisingly,” they went on, “the ideal risk weights turn out to have little to do with risk and are instead proportional to the profitability on each asset.”

August 22, 2014

Paul Krugman: Hawks Crying Wolf | NYTimes.com

According to a recent report in The Times, there is dissent at the Fed: “An increasingly vocal minority of Federal Reserve officials want the central bank to retreat more quickly” from its easy-money policies, which they warn run the risk of causing inflation…

…The Times article singles out for special mention Charles Plosser of the Philadelphia Fed, who is, indeed, warning about inflation risks. But you should know that he warned about the danger of rising inflation in 2008. He warned about it in 2009. He did the same in 2010, 2011, 2012 and 2013. He was wrong each time, but, undaunted, he’s now doing it again…

August 21, 2014

Barack Obama: Foreign policy realist?

Harvard professor, Stephen M Walt says Barack Obama isn’t weak and waffling — he’s calculating, coldhearted, and decisive when it counts:

….One can even see elements of this approach in Obama’s handling of China. He has repeatedly emphasized Asia’s importance to the United States, and the much-publicized “rebalancing” was obviously intended to signal to America’s Asian partners that it wasn’t abandoning the region. Obama reinforced these themes during his visit to Asia in April, but the administration has implemented this policy at a measured pace, content to let China’s growing assertiveness do the work for us. Overreacting would alarm the local powers and let them continue to free-ride, while speaking softly makes present and future allies more eager for help and more willing to do what America wants to get it.

The common thread to these various responses is an appreciation not just of the limits of U.S. power, but also of the limited need to exercise it. “Limited” does not mean zero, which is why sensible people oppose a return to 19th-century-style isolationism. But this approach recognizes that the overwhelming majority of problems in the world do not threaten the United States directly and therefore do not require an immediate, forceful, and potentially costly U.S. response.

As Andrew Sullivan likes to say, Obama’s greatest political genius has been his Road Runner-like ability to let enemies beat themselves.

August 21, 2014

The Stock Market’s Missing Ingredient | Bloomberg View

Barry Ritholz discusses why military conflicts around the globe and civil strife in Ferguson, Missouri have little impact on market performance:

….None of this seems to matter to Mr. Market. He continues to power on, oblivious to issues that don’t affect corporate earnings. They have, by the way, been stellar, growing at a 9 percent annual rate. Meanwhile, interest rates are still low and inflation is subdued.

Rarely have conditions for market gains been so promising at a time when investor psychology has been so negative. Gallup reports that only 7 percent of those surveyed were aware of last year’s scorching [29.7%] gains in the Standard & Poor’s 500 Index.

via The Stock Market's Missing Ingredient – Bloomberg View.

August 19, 2014

Dow heading for 17000

Dow Jones Industrial Average is headed for another test of 17000/17100 after finding support at 16400/16500. Recovery of 13-week Twiggs Money Flow above its July high would indicate that buyers are back in control. Breakout above 17100 would offer a target of 17500*. Reversal below 16400 is unlikely, but would warn of a test of the primary trendline at 16000.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

The S&P 500 followed through above Friday’s high of 1965, suggesting another attempt at 2000. Completion of a trough above zero on 21-day Twiggs Money Flow would confirm buying pressure. Breakout above 2000 would offer a target of 2250*, but expect markets to remain cautious because of current geopolitical tensions. Reversal below 1950 is unlikely, but would warn of another test of support at 1900.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

Low CBOE Volatility Index (VIX) readings are typical of a bull market.

VIX Index

August 18, 2014

Under What Circumstances Should You Worry That the Stock Market Is “too High”? | Brad DeLong

Brad DeLong discusses Robert Shiller’s CAPE ratio, a stock-price measure he helped develop:

….on average, at a ten-year horizon, for any CAPE ratio below 35 the S&P has delivered average real asset returns pretty much outclassing all other major asset classes…..

Thus you can see why I am relatively unsatisfied with Shiller’s writing:

“In the last century, the CAPE has fluctuated greatly, yet it has consistently reverted to its historical mean–sometimes taking a while to do so….”

Shiller’s rhetoric leads us to focus on graphs like this one of the Campbell-Shiller CAPE, and to think that what goes up must–someday–come down:

But is there any reason to think that the central tendency of the CAPE today is the same as what it was in the 1880s or the 1950s? There is no unchanging machine buried in the earth for the past 120 years throwing dice to determine the CAPE. It would be much better to say that extreme values of the CAPE are followed by reversion not to but toward the previous historical mean. And dividends and earnings shift too. A much better graph than the CAPE graph is the cumulative reinvested return graph [on a log scale]:

It goes way up, and way down, but the dominant feature is not mean reversion but rather exponential growth…..