The S&P 500 (September 2014) E-mini is retracing for another test of support at 2000. Markets were closed Monday for Labor Day. Respect of support is likely and would signal an advance to 2100*. Follow-through above 2004 would strengthen the signal. Breach of support at 2000 is unlikely, but would warn of another correction.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
From Gary Kasparov:
As always when it comes to stopping dictators, with every delay the price goes up. Western leaders have protested over the potential costs of action Ukraine at every turn only to be faced with the well-established historical fact that the real costs of inaction are always higher. Now the only options left are risky and difficult, and yet they must be tried. The best reason for acting to stop Putin today is brutally simple: It will only get harder tomorrow.
Read more at Garry Kasparov: It’s a War, Stupid! | TIME.
Vladimir Putin has escalated the conflict in Eastern Ukraine with new incursions of tanks backed with artillery, anti-aircraft missile systems and up to 15,000 Russian troops. Intent on seizing as much territory as possible, he is banking on the US/European coalition responding with another slap on the wrist. Each weak response has only made Putin bolder. But where he may miscalculate is that the coalition is aware that its “stick-and-carrot” policy has failed and will be looking for a new approach.
Willingness of the Europeans to endure immediate economic pain in the belief that this will avert a long-term calamity is yet to be tested. Success will depend on France, Spain and Italy’s support for their Northern and Central European neighbours, who face a more immediate threat.
A significant step-up in sanctions is likely and the initial response from European markets will be negative. Sanctions are a two-edged sword and likely to hurt Europe almost as much as they do Russia. But NATO rearmament in the medium-term would somewhat offset the initial cost. Never underestimate the stimulus effect of war on local industry — provided the war is fought outside one’s borders
Germany’s DAX is running into stiff resistance as it approaches 9750. And 13-week Twiggs Money Flow below zero warns of selling pressure, threatening a reversal. Retreat below 9250 would strengthen the signal and failure of support at 8900/9000 would confirm a primary down-trend.
* Target calculation: 9000 – ( 10000 – 9000 ) = 8000
Dow Jones Euro Stoxx 50 reversal below 3100 and 13-week Twiggs Money Flow below zero would add further weight to the (bear) signal.
* Target calculation: 3000 – ( 3300 – 3000 ) = 2700
The S&P 500, unfazed by recent developments in Europe, broke resistance at 2000 to signal an advance to 2100*. A 21-Day Twiggs Money Flow trough above zero indicates rising (medium-term) buying pressure. Reversal below 1990 is unlikely, but would warn of another correction.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX), shown here on a ten-year chart, indicates low risk typical of a bull market.
Shanghai Composite Index, responding to PBOC stimulus, is testing resistance at 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout would confirm a primary up-trend, signaling an advance to 2500*. Respect of resistance is less likely, but would suggest further consolidation.
* Target calculation: 2250 + ( 2250 – 2000 ) = 2500
The ASX 200 is testing resistance at 5650. Continued strength in US and Chinese stocks would improve the chance of an ASX 200 breakout, suggesting an advance to 5850*. Bearish divergence on 13-week Twiggs Money Flow — shown here on a monthly chart — continues to warn of long-term selling pressure. But failure to cross below zero would negate this and completion of another trough above zero would indicate that buyers are back in control. Reversal below 5450 is unlikely, but would warn of a test of primary support.
* Target calculation: 5650 + ( 5650 – 5450 ) = 5850
Chilling how accurate Michael Weiss’ March 28 analysis in Foreign Policy is proving to be.
RT @michaeldweiss: In late March I predicted Russia would invade east Ukraine. Here's why: http://t.co/FCDeLm2Va5
— Blogs of War (@BlogsofWar) August 27, 2014
The Dollar Index continues its impressive advance. Expect resistance at the 2013 highs at 84.50. Reversal below 81.50 is most unlikely.
* Target calculation: 81.50 – ( 81.50 – 79.00 ) = 84.00
The yield on ten-year Treasury Notes is retracing to test its new resistance level at 2.40/2.50 percent. The primary trend is down, with 13-week Twiggs Momentum holding below zero. Respect of resistance is highly likely and would confirm a decline to 2.00 percent*.
* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00
Gold continues in a narrow range, between $1280 and $1320/ounce, in the apex of the triangle. Both this and oscillation of 13-week Twiggs Momentum close to zero signal uncertainty. Expect further consolidation between $1250 and $1350 in the medium-term. Breakout from that band is likely to indicate future direction. Falling crude prices and low inflation favor a down-trend.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
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.
* 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.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250
Declining CBOE Volatility Index (VIX) readings suggest continuation of the bull market.
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.
* Target calculation: 4000 + ( 4000 – 3750 ) = 4250
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.
* 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.
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”.
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.”
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.
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.
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.
* Target calculation: 5650 + ( 5650 – 5450 ) = 5850
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.
Read more at Defence and Freedom: Aggressive defence.
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%.
The ECB’s more austere approach, on the other hand, has caused a world of pain.
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.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250
Declining CBOE Volatility Index (VIX) indicates low risk, typical of a bull market.
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.
* 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.
* 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.
* Target calculation: 5650 + ( 5650 – 5450 ) = 5850
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.”
Read more at Bank Watch: US Tsy's OFR Finds Risk Weighting Has No Clothes | MNI.