Category: US & Canada

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Dollar and treasury yields weaken

The yield on ten-year Treasury Notes is testing support between 2.60 and 2.65 percent. Breach would continue the correction to primary support at 2.50 percent. Bearish divergence on 13-week Twiggs Momentum warns of weakness. Breach of 2.50 would offer a target of 2.00 percent, while recovery above 2.75 would indicate an advance to 3.50 percent* — confirmed if there is a breakout above 3.00 percent.

10-Year Treasury Yields

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

Lower yields would suggest dollar weakness. A monthly chart shows the Dollar Index ranging between 80.00 and 81.50 over the past four months. Breach of the rising trendline indicates trend weakness and a break of support at 80.00 would test primary support at 79.00. Breach of primary support, and/or a 13-week Twiggs Momentum peak below zero, would signal a primary down-trend.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 79 ) = 84 or 79 – ( 84 – 79 ) = 74

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S&P 500 at 1850

The S&P 500 continues to encounter stout resistance at 1850. The narrow range, however, reflects buyers commitment. Follow-through above 1860 would signal an advance to 1950*. Reversal below 1825 is less likely, but would warn of another correction. The long-term trend remains bullish, with repeated 21-day Twiggs Money Flow troughs above the zero line.

S&P 500

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

CBOE Volatility Index (VIX) below 20 continues to indicate low risk typical of a bull market.

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S&P 500 meets resistance

The S&P 500 encountered stout resistance at 1850, highlighted by today’s false breakout. Follow-through above 1860 would indicate that buyers out-number sellers, signaling an advance to 1950*. Reversal below 1825 is unlikely, but would warn of another correction. The long-term trend remains bullish, with repeated 21-day Twiggs Money Flow troughs above the zero line.

S&P 500

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

CBOE Volatility Index (VIX) below 20 reflects low risk typical of a bull market.

VIX Index

Dow Jones Industrial Average is weaker. Large bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Reversal below 16000 would warn of a correction to test primary support at 15400.

Dow Jones Industrial Average

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

The Nasdaq 100, on the other hand, remains bullish. Reversal below 3600, especially after last week’s doji star candlestick formation, would warn of a test of primary support at 3400. Decline of 13-week Twiggs Money Flow below its recent low would strengthen the signal. Breakout above 3700, however, would offer a target of 3800*.

Nasdaq 100

* Target calculation: 3600 + ( 3600 – 3400 ) = 3800

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Nasdaq big picture

You don’t often see buying pressure as good as the Nasdaq 100, with 21-day Money Flow holding above zero for more than a year (posted in response to a reader comment that the Nasdaq breakout looked phony).

Nasdaq 100

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Declining US commercial bank loans?

Sober Look highlights the sharply declining ratio of commercial bank loans and leases to bank deposits.

Ratio of commercial bank loans and leases to bank deposits

Its only when we examine the detail, however, that we note cash reserves have ballooned in the last 10 years. And most of those cash reserves are deposits at the Fed which now (post-GFC) earn interest. Adjust total deposits at commercial banks, for the excess reserves deposited back with the Fed, and the current ratio of 1:1 looks a lot healthier.

Ratio of commercial bank loans and leases to bank deposits Adjusted for Excess Reserves

As I pointed out in November, most new money created by the Fed QE program is being deposited straight back with the Fed as excess reserves. We need to adjust bank deposits for this effect to obtain a true reflection of bank lending activity.

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Canada: TSX 60 buying pressure

Canada’s TSX 60 is testing the January high at 806. Higher troughs on 13-week Twiggs Money Flow suggest strong buying pressure. Breach of the rising trendline is unlikely, but would warn of another test of primary support at 770. Expect long-term resistance at the 2011 high of 820*.

TSX 60

* Target calculation: 780 + ( 780 – 740 ) = 820

New lows on the TSX 60 VIX flag a strong bull market.

TSX 60 VIX

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Nasdaq leads market higher

The Nasdaq 100 broke through its January high, signaling an advance to 3800*. Retreat below the (secondary) rising trendline is unlikely, but would test primary support at 3400. Another 13-week Twiggs Money Flow trough high above zero indicates strong buying pressure.

Nasdaq 100

* Target calculation: 3600 + ( 3600 – 3400 ) = 3800

The S&P 500 is testing similar resistance at 1850. Breakout would signal an advance to 1950*. Respect is unlikely, given the Nasdaq breakout, but would warn of another correction. Completion of a 13-week Twiggs Money Flow trough above zero would be a bullish sign.

S&P 500

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

CBOE Volatility Index (VIX) below 20 suggests low risk typical of a bull market.

VIX Index

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Firming Treasury yields support the Dollar

The yield on ten-year Treasury Notes recovered above resistance at 2.75 percent after penetrating the descending trendline, suggesting the correction is over. Follow-through (above say 2.80) would indicate another test of 3.00 percent. Bearish divergence on 13-week Twiggs Momentum, however, continues to warn of weakness. Breach of 2.50 is unlikely, but would offer a target of 2.00 percent*.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

The Dollar Index continues to test resistance at 81.50. Breakout would signal a primary advance to 83.00*. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Reversal below 79.70 is unlikely, but would warn of a primary down-trend — strengthened if support at 79.00 is broken.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 80 ) = 83

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The hole in US employment

US employment is topical after two months of poor jobs figures. Employers added 113,000 new jobs, against an expected 185,000, last month and a low 75,000 in December. Rather than focus on monthly data, let’s take a long-term view.

The number of full-time employed as a percentage of total population [red line below] fell dramatically during the GFC, with about 1 in 10 employees losing their jobs. Since then, roughly 1 out of 4 full-time jobs lost has been restored, while the other 3 are still missing (population growth fell from 1.0% to around 0.7% post-GFC, limiting the distortion).

Employed Normally Full-time as Percentage of Population

Comparing employment levels to the 1980s is little consolation because this is skewed by the rising participation rate of women in the work-force. The pink line below shows how the number of women employed grew from under 14% of total population in the late 1960s to more than 22% prior to the GFC. The effect on total employment [green line] was dramatic, while employment of men [blue line] oscillated between 24% and 26%.

US Men & Women Employment Levels as Percentage of Population

Part-time employment — the difference between total employment [green] and full-time employed [red] below — has leveled off since 2000 at roughly 6% of the total population. So loss of full-time positions has not been compensated by a rise in casual work. Both have been affected.

US Full-time and Total Employment as Percentage of Population

The “good news” is that a soft labor market will lead to low wages growth for a considerable period, boosting corporate profits.

The bad news is that low employment levels will depress sales growth [green line]….

Total US Business Sales Percentage Growth and over GDP

And discourage new investment…..

Private NonResidential Fixed Investment

Which would harm future growth.

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S&P 500 finds support

The S&P 500 hammer candlestick on the weekly chart indicates support at 1750 and the secondary trendline. Follow-through above 1800 would strengthen the signal, suggesting an advance to 2000*. Breakout above 1850 would confirm. Recovery of 13-week Twiggs Money Flow above 40% (the most recent high) would indicate that the correction is over. Breach of 1750 seems unlikely, but would warn of a test of the primary trendline, around 1700.

S&P 500

* Target calculation: 1850 + ( 1850 – 1700 ) = 2000

CBOE Volatility Index (VIX) retreated below 20, suggesting low risk typical of a bull market.

VIX Index

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