US & Canada Archives - Page 83 of 174

April 16, 2014

S&P 500 recovery

The S&P 500 recovered above 1850, suggesting an advance to 1950. Breakout above 1900 would confirm. Recovery of 21-day Twiggs Money Flow above its descending trendline indicates that selling pressure is easing. Reversal below 1840 is less likely, but would warn of a test of primary support at 1750.

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950

CBOE Volatility Index (VIX) retreated to 14, indicating low risk typical of a bull market.

VIX Index

The Nasdaq 100 found strong support at 3400 on the weekly chart. Recovery above 3600 would suggest an advance. Breakout above 3700 would confirm, offering a target of 4000*. Recovery of 13-week Twiggs Money Flow above zero would be a bullish sign. Respect of resistance at 3600 would be bearish.

Nasdaq 100

* Target calculation: 3700 + ( 3700 – 3400 ) = 4000

The primary trend continues upward and none of our market filters indicate elevated risk.

April 11, 2014

Markets warn of correction

Before we examine the US and Australian markets, please take a look at the two charts below and tell me whether the trend is up or down. If you have a five-year old or six-year old handy, try asking them.

S&P 500

And the second one:

ASX 200

The trend on both is clear. If we invert the charts, you will recognize the S&P 500:

S&P 500

The S&P 500 breach of support at 1840 warns of a secondary correction and a sharp fall on 13-week Twiggs Money suggests selling pressure similar to the correction in late 2012. But the primary trend is up.

Likewise the ASX 200. The index retreated from 5500 and follow-through below 5380 would warn of a secondary correction. But 13-week Twiggs Money Flow oscillating above zero indicates buying pressure and the primary trend remains upward.

ASX 200

Momentum stocks are experiencing a sell-off, but our strategy is to hold existing positions. Attempting to time entries and exits in secondary corrections erodes performance. None of our market filters indicate elevated risk and we are confident that this is a bull market.

April 9, 2014

Are we in a bull market?

A simple reflection of the weekly trend on major markets using Ichimoku Cloud. Candles above the cloud indicate an up-trend, below the cloud indicates a down-trend, while in the cloud reflects uncertainty. From West to East:
S&P 500
S&P 500
Footsie
FTSE 100
DAX
DAX
ASX 200
ASX 200
Nikkei 225 is testing primary support at 14000 and looks a bit weaker

While China is holding above primary support at 1950/2000 but shows no clear trend
Shanghai Composite

Overall, there is a strong case for a bull market.

April 8, 2014

Big Banks to Get Higher Capital Requirement – WSJ.com

Stephanie Armour and Ryan Tracy discuss the new leverage ratio that the eight biggest US lenders will be required to meet:

The eight bank-holding companies would have to hold loss-absorbing capital worth at least 5% of their assets to avoid limits on rewarding shareholders and paying bonuses, and their FDIC-insured bank subsidiaries would have to keep a minimum leverage ratio of at least 6% or face corrective actions. That is higher than the 3% agreed upon under global standards, which U.S. regulators have seen as too weak.

[FDIC Chairman Maurice] Gruenberg said leaving the leverage ratio at 3% for large banks “would not have meaningfully constrained leverage during the years leading to the crisis.” He said the rule “may be the most significant step we have taken to reduce the systemic risk posed by these large complex banking organizations.”

Banks are pushing back against the new ratios required by the Fed, FDIC and the Office of the Comptroller of the Currency.

Banks have balked at the leverage ratio, saying it will curtail lending and saddle them with more costs that leave them at a competitive disadvantage against foreign banks with lower capital requirements. Banks will have to hold that capital as protection for every loan, security and asset they hold, not just those deemed risky.

As a general rule, share capital is more expensive than debt, but that may not be the case with highly leveraged banks if you remove the too-big-to-fail taxpayer subsidy. Improved capital ratios would lower the risk premium associated with both the cost of capital and the cost of debt, offering a competitive advantage over foreign banks with higher leverage.

I would like to see APRA impose a similar minimum on Australia’s big four banks which currently range between 4% and 5%.

April 7, 2014

Canada: TSX 60 resistance holds

Canada’s TSX 60 continues to test resistance at 820. After two false breakouts, follow-through above 830 would confirm, signaling an advance to 850*. Divergence on 13-week Twiggs Money Flow, however, warns of continued selling pressure. Reversal below 810 remains less likely, but would warn of a (bull trap) correction to 770.

TSX 60

* Target calculation: 810 + ( 810 – 770 ) = 850

TSX 60 VIX remains low, at 10. Typical of a strong bull market.

TSX 60 VIX

April 6, 2014

Market sell-off despite improved job numbers

The market experienced a strong sell-off Friday, despite signs that the Winter slowdown in job creation is over. Nelson Schwartz at the New York Times writes:

The latest numbers are likely to be revised significantly as more information flows into the Bureau of Labor Statistics. Even so, they suggest that the economy is not achieving what economists call escape velocity, something that policy makers have long sought. Neither is it falling into the rut some pessimists feared was developing early in 2014.

The S&P 500 retreated below its latest support level of 1880. Follow-through below 1840 would signal a correction, while respect of support would suggest an advance to 1950*. Bearish divergence on 21-day Twiggs Money Flow continues to warn of medium-term selling pressure and reversal below zero would strengthen the signal. An early correction (without a decent advance above the January high) would be a bearish sign, indicating that long-term sellers outnumber buyers.

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950

CBOE Volatility Index (VIX) at 14 continues to indicate low risk typical of a bull market.

VIX Index

The Nasdaq 100 indicates long-term selling pressure, with a sharp fall following bearish divergence on 13-week Twiggs Money Flow. Breach of the (secondary) rising trendline and support at 3550 warns of a correction to primary support at 3400. Recovery above 3650 is unlikely, but would suggest a bear trap.

Nasdaq 100

* Target calculation: 3750 + ( 3750 – 3550 ) = 3950

The primary trend remains upward and none of our market filters indicate signs of stress.

April 3, 2014

Canada: TSX 60 advances

Canada’s TSX 60 broke through resistance at 820, signaling an advance to 850*. Sharp divergence on 13-week Twiggs Money Flow is testimony to the level of selling encountered at the resistance level. Completion of a trough high above zero would signal a strong up-trend. Reversal below 810 is unlikely, but would warn of a bull trap.

TSX 60

* Target calculation: 810 + ( 810 – 770 ) = 850

TSX 60 VIX is exceptionally low at 9, typical of a strong bull market.

TSX 60 VIX

April 3, 2014

S&P 500 breakout

Narrow consolidation on the S&P 500 weekly chart and completion of a shallow correction on the Nasdaq 100 would suggest a strong up-trend.

The S&P 500 broke through resistance at 1875/1880, signaling an advance to 1950*. Layering above 1850 throughout March reflected strong selling, with bearish divergence on 21-day Twiggs Money Flow warning of medium-term selling pressure, but upward breakout indicates that buyers have prevailed. Reversal below 1875 is unlikely, but would warn of a bull trap — as would a peak below the descending trendline on Twiggs Money Flow.

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950

CBOE Volatility Index (VIX) at 13 indicates low risk typical of a bull market.

VIX Index

The Nasdaq 100 found support at 3550 and the (secondary) ascending trendline. Recovery above 3700 would confirm another advance, but continued bearish divergence on 13-week Twiggs Money Flow would warn of persistent selling pressure.

Nasdaq 100

* Target calculation: 3750 + ( 3750 – 3550 ) = 3950

April 1, 2014

Gold losing its luster

Inflation pressures are easing and Elliot Clarke summarizes Westpac’s outlook for US inflation as follows:

This week we decompose the Personal Consumption Expenditure (PCE) deflator to assess what inflation pressures currently exist and how they are likely to develop. The conclusion is that the inflation picture argues for an extended period of extremely accommodative policy settings and it may even serve to delay the timing of the initial interest rate increase well beyond the timeframe currently envisaged by markets.

Soft treasury yields, a weak dollar and weaker gold price tend to support this view.

Interest Rates and the Dollar

The yield on ten-year Treasury Notes is ranging in a narrow band between 2.60 percent and 2.80 percent. Breakout above 2.80 would indicate an advance to 3.50 percent* — confirmed if there is follow-through above 3.00 percent — but declining 13-week Twiggs Momentum continues to warn of weakness. Breach of primary support at 2.50 percent is as likely and would signal a primary down-trend.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

The Dollar Index is testing medium-term resistance at 80.50. Breakout would suggest that a bottom is forming, but only recovery above 81.50 would signal a trend change. 13-Week Twiggs Momentum oscillating below zero, however, is typical of a primary down-trend. Breach of primary support at 79.00 would signal a decline to 76.50*.

Dollar Index

* Target calculation: 79.0 – ( 81.5 – 79.0 ) = 76.5

Gold and Silver

Silver failed to imitate gold’s performance in the first quarter and is headed for a test of primary support at $19/ounce. 13-Week Twiggs Momentum likewise failed to cross to above zero, suggesting continuation of the primary down-trend. Breach of primary support would offer a target of $16, while respect of support would test resistance at $22/ounce.

Spot Silver

Spot gold is undergoing a strong correction, having breached the rising trendline and support at $1320/ounce. The outlook remains bullish, but breach of primary support by Silver or continued decline of 13-week Twiggs Momentum below zero would negate this. Failure of primary support at $1200 is unlikely, but would offer a target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Copper

Copper is a commodity rather than a precious metal, but is also used as a store of value. At present, copper is testing long-term support at $6800/tonne. Follow-through below $6600 would signal continuation of the primary down-trend to $6000/tonne*. Recovery above the descending trendline (at $7000) is unlikely, but would suggest that a bottom is forming.

Copper

* Target calculation: 6750 – ( 7500 – 6750 ) = 6000

March 31, 2014

S&P 500 continues to rally

The S&P 500 rally is testing resistance at 1875/1880. Volumes are light, but an attempted breakout above 1880 should reveal any patient sellers lying in wait. Successful breakout would signal an advance to 1950*, but bearish divergence on 21-day Twiggs Money Flow continues to warn of medium-term selling pressure.

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950