Looks like a robust recovery to me.
Dow and S&P 500 make new highs
- US stocks have reaffirmed their bull market
- European stocks are recovering
- China and Japan signal up-trends
- ASX is rising
The new reporting season is under way and fund managers are now looking for opportunities rather than selling off under-performers.
Dow Jones Industrial Average made a new high, above 17300, signaling a primary advance. Reversal below 17000 and the rising trendline is most unlikely, but would warn of another correction. Target for the advance is 18000*.
* Target calculation: 17000 + ( 17000 – 16000 ) = 18000
The S&P 500 similarly made a new high, signaling a fresh advance. Rising 13-week Twiggs Money Flow (above zero) indicates medium-term buying pressure. Target for the advance is 2150*. Reversal below 2000 and the rising trendline is unlikely, but would signal another correction.
* Target calculation: 2000 + ( 2000 – 1850 ) = 2150
CBOE Volatility Index (VIX) at 14 indicates low risk typical of a bull market.
Dow Jones Euro Stoxx 50 continues to advance above its former primary support level at 3000. Long tails on the weekly candlesticks and recovery of 13-week Twiggs Money Flow above zero indicate buying pressure. Expect another test of 3300. Reversal below 3000 is less likely, but would signal a primary down-trend.
* Target calculation: 3000 – ( 3300 – 3000 ) = 2700
China’s Shanghai Composite Index rallied above its recent high at 2400, confirming a primary up-trend. Target for the new advance is 2500*. and the rising trendline, warning of a correction. Rising 13-week Twiggs Money Flow trough (above zero) indicates medium-term buying pressure; completion of a trough high above zero would signal trend strength.
* Target calculation: 2400 + ( 2400 – 2300 ) = 2500
Japan’s Nikkei 225 Index broke resistance at 16300, signaling an advance with a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of another correction.
* Target calculation: 16000 + ( 16000 – 14000 ) = 18000
The ASX 200 is headed for a test of resistance at 5660. Brief retracement at 5440 and rising 21-day Twiggs Money Flow (above zero) both indicate medium-term buying pressure. Reversal below 5440 is unlikely, but would indicate a test of 5250. I have lowered the target to 6000* because of constant back-filling in recent months.
* Target calculation: 5650 + ( 5650 – 5300 ) = 6000
The Index of Cronyism by The Economist
Alejandro Chafuen discusses the impact of crony capitalism:
Unfortunately, much of the debate about cronyism is based on anecdotes and generalizations…..In the United States we have efforts, such as Subsidy Tracker, which give some idea of the problem. Subsidies feed cronyism. Known state subsidies to private business add up to $153 billion.
Subsidies are merely the tip of the iceberg. Artificial exchange rates and offshoring have cost millions of US manufacturing jobs.
The Economist has produced an Index of Cronyism which ranks Hong Kong as #1 and Russia #2 on the list. But it points out that the index is only a rough guide with three major shortcomings:
- Not all cronies, especially politicians, disclose their wealth. So the fortune of Vladimir Putin, for example, is not included.
- The index concentrates on vulnerable sectors and ignores other forms of subsidy outside these areas. And all companies in a sector, good or bad, are tarred with the same brush.
- Only the wealth of billionaires is counted. There are many less-wealthy public servants and corporate officers who also benefit.
….More than a reason for criticism, “The Economist” and its Index of Cronyism should be a call for action and improvement. “If it Matters Measure It,” says the motto of the Fraser Institute. Cronyism matters. Measure it.
I wholeheartedly agree. Cronyism is a bigger threat to capitalism than (largely discredited) socialism. More work needs to be done to measure its economic and social cost.
Read more at The Index Of Cronyism By 'The Economist': A Call For Improvement.
Poland Prepares for Russian Invasion | The XX Committee
A top Polish MoD official, a man of “sober and strongly pro-American views” opines about Barack Obama and his national security staff:
“…You have no idea how many promises we’ve been given, even by the President himself, but there’s never any follow-up, it’s all talk. He thinks he’s on Oprah.” When I asked if he thought America would come to Poland’s aid in a crisis, he said laconically, “I’d flip a coin.”
Read more at Poland Prepares for Russian Invasion | The XX Committee.
Dollar rising as Treasury yields recover
The yield on ten-year Treasury Notes recovered above the former support level at 2.30%, suggesting another test of 2.50% and the descending trendline. Reversal below 2.30%, however, would warn of another test of primary support at 2.00%. 13-Week Twiggs Momentum below zero continues to signal a primary down-trend.
* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00
The Dollar Index respected its new support level at 84.50 and recovery above 86.5 would confirm a primary advance to 89*. Rising 13-week Twiggs Momentum suggests a healthy (primary) up-trend. Failure of support at 84.50 is unlikely, but would warn of correction to the primary trendline.
* Target calculation: 84 + ( 84 – 79 ) = 89.00
Are corporate profit margins sustainable?
Market capitalization as a percentage of (US) GNP is climbing and some commentators have been predicting a reversion to the mean — a substantial fall in market cap.
But corporate profits have been climbing at a similar rate.
Wages surged as a percentage of value added in the first quarter (2014) and profit margins fell sharply, adding fresh impetus to the bear outlook. But margins recovered to 10.6% in the second quarter.
Further gains in the third quarter would suggest that profits are sustainable. Research by Morgan Stanley supports this view, revealing that improved profit margins are largely attributable to the top 50 mega-corporations in the US:
Mega cap companies (the largest 50 by size) have been able to pull their margins away from the smaller companies through globalization, productivity, scale, cost of capital, and taxes, among other reasons. We argue against frameworks that call for near-term mean reversion and base equity return algorithms off the concept of overearning. Why? The margins for the mega cap cohort in the last two downturns of 2001 and 2008 were well above the HIGHEST margins achieved during the 1974-1994 period. To us, this is a powerful indication that the mega cap cohort is unlikely to mean revert back to the 1970s to 1990s average level.
(From Sam Ro at Business Insider)
Also interesting is The Bank of England’s surprise at the lack of inflation in response to falling unemployment. One would expect wage rates to rise when slack is taken up in the labor market, but this has failed to materialize. It may be that unemployment is understated — and a rising participation rate will keep the lid on wages. If this happens in the US it would add further support for sustainable profit margins.
Dow & Nasdaq buying pressure
Dow Jones Industrial Average penetrated its descending trendline, suggesting that the correction is over. Recovery above 17000 would signal an advance to 18000* — confirmed if follow-through above resistance at 17300. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Respect of resistance at 17000 is unlikely, but would warn of another test of 16350.
* Target calculation: 17000 + ( 17000 – 16000 ) = 18000
The Nasdaq 100 recovered above its descending trendline and resistance at 4000, signaling an advance to 4500*. Follow-through above 4100 would confirm. Recovery of 13-week Twiggs Money Flow above 35% would flag buying pressure. Reversal below 4000 is unlikely, but would warn of a test of another test of the rising trendline.
* Target calculation: 4100 + ( 4100 – 3700 ) = 4500
October correction nearing end
- DAX and FTSE in a down-trend
- China and Hong Kong retreat
- US stocks remain in a bull market
- ASX ends correction
The new reporting season is under way and fund managers are now looking for opportunities rather than selling off under-performers.
The S&P 500 broke resistance at 1900 and 1925. Penetration of the descending trendline suggests that the October correction is over. Recovery of 21-Day Twiggs Money Flow above zero indicates medium-term buying pressure. Expect a test of resistance at 2000 followed by consolidation or retracement to confirm support at 1925. Narrow consolidation below 2000 would be a bullish sign.
* Target calculation: 2000 + ( 2000 – 1850 ) = 2150
CBOE Volatility Index (VIX) at 16 again indicates low risk typical of a bull market.
The Nasdaq 100 recovered above resistance at 4000, indicating a fresh advance. Penetration of the descending trendline signals that the correction is over. Completion of a 13-week Twiggs Money Flow trough high above zero would indicate long-term buying pressure. Reversal below 4000 is unlikely, but would warn of another test of support.
* Target calculation: 4100 + ( 4100 – 3800 ) = 4400
Dow Jones Euro Stoxx 50 recovered above its former primary support level at 3000, suggesting a bear trap. The primary trend remains downward, but recovery of 13-week Twiggs Money Flow above zero would suggest another test of 3300.
* Target calculation: 9000 – ( 10000 – 9000 ) = 8000
China’s Shanghai Composite Index retreated below support at 2340/2350 and the rising trendline, warning of a correction. A 13-week Twiggs Money Flow trough above zero would confirm the primary up-trend, while reversal below zero would warn of a bear market.
The ASX 200 recovered above resistance at 5250 and 5350 and the descending trendline, indicating that the correction is over. Breach of resistance at 5450 would signal another test of 5650. Bullish divergence and rising 21-day Twiggs Money Flow (above zero) indicate medium-term buying pressure. Reversal below 5350 is unlikely, but would indicate another test of 5120.
Treasury yields fall and the Dollar finds support
The yield on ten-year Treasury Notes is in a primary down-trend (since breaking support at 2.50%). Expect retracement to test resistance at 2.30%. Respect is likely and would indicate another test of primary support at 2.00%*. A 13-week Twiggs Momentum peak below zero signals bear strength. Recovery above 2.30 is unlikely, but would test the descending trendline and resistance at 2.50%.
* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00
Inflation expectations are falling, with the 5-year inflation breakeven rate (5-year treasury yields minus the 5-year TIPS rate) now close to 1.4%.
The Dollar Index respected its new support level at 84.50. Recovery above 86.5 would confirm a primary advance and a target of 89*. Rising 13-week Twiggs Momentum suggests a healthy (primary) up-trend. Failure of support at 84.50 is unlikely, but would warn of a correction to the primary trendline.
* Target calculation: 84 + ( 84 – 79 ) = 89.00
Shots fired in parliament building, Ottawa [video]
The suspect had apparently already shot and killed a reservist soldier standing guard at the National War Memorial.
More #breaking: @CNN confirms name of soldier who was killed in #OttawaShooting as Nathan Cirillo. @paulanewtonCNN pic.twitter.com/3e8cFKOUnT
— The Situation Room (@CNNSitRoom) October 22, 2014
Condolences to family of the soldier killed, & prayers for the Parliamentary guard wounded. Canada will not be terrorized or intimidated.
— Jason Kenney (@jkenney) October 22, 2014