Canada’s TSX 60 respected support at 772/775, indicating an advance to 800*. Bearish divergence on 21-day Twiggs Money Flow reflects selling pressure during the recent consolidation. A trough above zero would indicate buying pressure, but reversal below zero would warn of a correction — as would breach of short-term support at 772.
* Target calculation: 740 + ( 740 – 680 ) = 800
TSX 60 VIX at historic lows signals a bullish outlook for stocks.
Dow Jones Industrial Average is advancing strongly, with rising 13-week Twiggs Money Flow indicating medium-term buying pressure. Target for the advance is 16600*. Retracement to test the new support level remains likely, however, and respect would confirm the advance. Reversal below 15700 is unlikely, but would test the secondary rising trendline around 15500.
* Target calculation: 15700 + ( 15700 – 14800 ) = 16600
The S&P 500 is testing resistance at the target of 1800*. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 1750 would warn of a correction to the secondary trendline at 1700. Short corrections are indicative of strong buying pressure.
* Target calculation: 1725 + ( 1725 – 1650 ) = 1800
CBOE Volatility Index (VIX) continues below 15, indicating low market risk.
The Nasdaq 100 continues its accelerating up-trend. Rising Twiggs Money Flow, with higher troughs above the zero line, indicates strong buying pressure. Target for the advance is 3550*. Reversal below the latest trendline would warn of a correction. Short corrections and narrow consolidations reflect an accelerating trend, or blow-off. Steep gains, however, almost inevitably end with a sharp fall.
* Target calculation: 3400 + ( 3400 – 3250 ) = 3550
Question received from CG about the impact of QE and Fed taper:
I’m not arguing against the data presented on the graph, but if true that most of the QE bond purchases are being parked by banks in interest-bearing, excess reserve deposits at the Fed, why do the markets get spooked every time there are whispers that the Fed is going to reduce QE?
The comment CG is referring to:
Currently, there is evidence of expansive monetary policy from the Fed, but the overall impact on the financial markets is muted. Most of the QE bond purchases are being parked by banks in interest-bearing, excess reserve deposits at the Fed. The chart below compares Fed balance sheet expansion (QE) to the increase in excess reserve deposits at the Fed.
A classic placebo effect, the Fed is well aware that the major benefit of their quantitative easing program is psychological: there is little monetary impact on the markets.
My answer:
The markets have no real reason to fear a QE taper. I think this is more psychological than physical. The current mind-set is:
If the Fed begins to taper, that marks the end of the bull market in bonds. Rising bond yields and higher long-term interest rates may slow industry investment and recovery of the housing market and this would be bad for the economy.
In other words, they still have a bearish outlook. At some point they will shift to the counter-argument:
QE taper and rising interest rates indicate Fed faith in the recovery and are a bullish sign for stocks. It also means the economy is reverting to a sustainable path.
The bottom-line is that markets are driven as much by emotion as by logic.
This an example of the monthly updates from the new Research & Investment joint venture between Incredible Charts and Porter Capital.
S&P 500 Momentum is based on Porter Capital’s successful ASX200 Prime Momentum strategy which returned +38.43% for the 12 months ended 31st October 2013. Actual historical performance for the S&P 500 is not yet available.
The portfolio includes the usual technology, Internet retail and biotechnology sectors but also insurance, airlines, and oil & gas exploration.
Star performer Netflix (NFLX) climbed from $80 to above $350 over the last year, breaking its 2011 high of $300. Twiggs Money Flow troughs above zero indicate strong buying pressure.
We continue to hold the following stocks:
There are four new additions this month:
Biotech newcomer Gilead Sciences (GILD) climbed from $20 to above $70 over the last three years. Short corrections indicate buying pressure and respect of support at $64 would signal a fresh advance. Twiggs Money Flow troughs high above zero also suggest strong buying pressure.
Stocks replaced are:
Regneron Pharmaceuticals (REGN) rose from $30 to $300 over the last three years, but encountered strong resistance at $300/$320 and has fallen outside our top ten ranking. Breach of support at $270 and the rising trendline would warn that the primary trend is weakening. Recovery above $320, however, would most likely see it regain its position in the portfolio.
Our market filters indicate low to moderate risk and we maintain full exposure to equities.
As global growth recovers we expect equity markets to be buoyed by improvements in both earnings and dividends, with strong momentum over the quarter. There is much discussion in the media as to whether various markets are in a “bubble”. Little attention is devoted to the fact that bubbles can last for several years, and sometimes even decades. The main driver of both stock market bubbles and real estate bubbles is debt. Anna Schwartz, co-author with Milton Friedman of A Monetary History of the United States (1963) described the relationship to the Wall Street Journal:
If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset. The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates …..
Currently, there is evidence of expansive monetary policy from the Fed, but the overall impact on the financial markets is muted. Most of the QE bond purchases are being parked by banks in interest-bearing, excess reserve deposits at the Fed. The chart below compares Fed balance sheet expansion (QE) to the increase in excess reserve deposits at the Fed.
A classic placebo effect, the Fed is well aware that the major benefit of their quantitative easing program is psychological: there is little monetary impact on the markets.
Corporate debt (green line below) is expanding rapidly as corporations take advantage of the opportunity to issue new debt at low interest rates, but household debt (red) is still shrinking.
There are pockets of concern, like the rapid recovery in NYSE margin debt, but risk of a Dotcom-style stock market bubble or a 2002/2007 housing bubble is low while household debt contracts.
Regards,
Colin Twiggs
Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.
~ Aristotle
Research & Investment Pty Ltd is a Corporate Authorized Representative (AR Number 384 397) of Andika Pty Ltd which holds an Australian Financial Services Licence (AFSL 297069).
The information on this web site and in the newsletters is general in nature and does not consider your personal circumstances. Please contact your professional financial adviser for advice tailored to your needs.
Research & Investment Pty Ltd (“R&I”) has made every effort to ensure the reliability of the views and recommendations expressed in the reports published on its websites and newsletters. Our research is based upon information known to us or which was obtained from sources which we believe to be reliable and accurate.
No guarantee as to the capital value of investments, nor future returns are made by R&I. Neither R&I nor its employees make any representation, warranty or guarantee that the information provided is complete, accurate, current or reliable.
You are under no obligation to use these services and should always compare financial services/products to find one which best meets your personal objectives, financial situation or needs.
To the extent permitted by law, R&I and its employees, agents and authorized representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information. If the law prohibits the exclusion of such liability, such liability shall be limited, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.
Research & Investment (R&I) specialize in developing, testing and researching investment strategies and systems. Within the R&I web site and newsletters, you will find information about investment strategies and their performance. It is important that you understand that results from R&I research are simulated and not actual results.
No representation is made that any investor will or is likely to achieve profits or losses similar to those shown.
Simulated performance results are generally prepared with the benefit of hindsight and do not involve financial risk. No modelling can completely account for the impact of financial risk in actual investment. Account size, brokerage and slippage may also diverge from simulated results. Numerous other factors related to the markets in general or to the implementation of any specific investment system cannot be fully accounted for in the preparation of simulated performance results and may adversely affect actual investment results.
To the extent permitted by law, R&I and its employees, agents and authorized representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information offered by R&I whether or not caused by any negligent act or omission.
The Euro continues to test support at $1.3350 against the greenback after a false break above the February high of $1.37. Breach of support would warn of a bull trap, and follow-through below $1.31 and the rising trendline would signal a reversal. 13-Week Twiggs Momentum, however, continues to indicate a primary up-trend; a trough above zero would strengthen the signal. Recovery above $1.37 is less likely, but would signal a fresh advance.
* Target calculation: 1.38 + ( 1.38 – 1.34 ) = 1.42
Sterling is testing resistance at €1.20. Recovery of 13-week Twiggs Momentum above zero suggests an up-trend. Breakout above €1.20 would signal an advance to €1.23*. Respect of resistance is unlikely, but would suggest another test of €1.1650.
* Target calculation: 1.20 + ( 1.20 – 1.17 ) = 1.23
The Greenback is headed for another test of resistance at ¥101. The bullish ascending triangle suggests an upward breakout with a target of ¥108. Breakout above ¥101 would confirm. 13-Week Twiggs Momentum descended steeply over the length of the consolidation, but completion of a trough above zero (recovery above say 5%) would indicate a primary up-trend. Reversal below support at ¥96 is now unlikely.
* Target calculation: 1.01 + ( 1.01 – 0.94 ) = 1.08
Recovery of Canada’s Loonie above $0.96 would complete a second higher trough against its US neighbor. Breakout above $0.9750 would signal a primary up-trend, but breach of primary support at $0.9450 is as likely and would signal continuation of the primary down-trend. Another 13-week Twiggs Momentum peak below zero would also indicate a down-trend.
The Aussie Dollar is testing medium-term support at $0.93*. Respect of the zero line by 63-day Twiggs Momentum suggests continuation of the down-trend. Breach of support at $0.93 would confirm, signaling a test of primary support at $0.89. Recovery above $0.9450 is less likely, but would a rally to $0.9750. The RBA needs a weaker Aussie Dollar, without lowering interest rates, and will do all it can to assist the decline.
* Target calculation: 0.975 + ( 0.975 – 0.95 ) = 1.00
The Aussie continues to test support at $1.12 against its Kiwi neighbor. Rising Momentum suggests another rally to $1.16, confirmed if resistance at $1.14 is broken. But breakout below $1.12 would signal a decline to $1.08*. Breakout above $1.16 would complete a triple-bottom reversal with a target of $1.20*.
* Target calculations: 1.12 – ( 1.16 – 1.12 ) = 1.08 OR 1.16 + ( 1.16 – 1.12 ) = 1.20
Canada’s TSX 60 followed through above 775 after a short consolidation, signaling an advance to 800* — close to the 2011 high of 820. Rising 13-week Twiggs Money Flow indicates buying pressure. Reversal below support at 740 is most unlikely.
* Target calculation: 740 + ( 740 – 680 ) = 800
TSX 60 VIX retreated below 15, indicating low market risk.
The S&P 500 is advancing strongly but expect some resistance at the target of 1800*. Penetration of the descending trendline on 13-week Twiggs Money Flow suggests that selling pressure is easing. Reversal below 1750 is unlikely at present, but would warn of a correction to at least the secondary trendline at 1700. Short corrections are indicative of long-term buying pressure.
* Target calculation: 1725 + ( 1725 – 1650 ) = 1800
Bellwether transport stock Fedex exceeded its target of $130*, with rising Twiggs Money Flow indicating strong buying pressure. A bullish sign for the US economy.
* Target calculation: 100 + ( 100 – 70 ) = 130
CBOE Volatility Index (VIX) below 15 continues to indicate low market risk.
The Nasdaq 100 continues its accelerating up-trend, breaking resistance at 3400 after a brief consolidation. Rising Twiggs Money Flow, with troughs above the zero line, indicates strong buying pressure. Target for the advance is 3550*. Accelerating trends, or blow-offs, enjoy rapid gains but inevitably end with a sharp fall.
* Target calculation: 3400 + ( 3400 – 3250 ) = 3550
Dow Jones Industrial Average followed through above 15800 after breaking resistance at 15700 to signal a fresh advance. Expect retracement to again test 15700 in the next few weeks, but respect of the new support level strengthens the breakout signal. Long-term target for the advance is 16600*. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Reversal below 15500 is unlikely, but would warn of another test of primary support at 14800.
* Target calculation: 15700 + ( 15700 – 14800 ) = 16600
Canada’s TSX 60 is consolidating in a narrow range at its medium-term target of 770 after a strong spurt. This is a bullish sign and follow-through above 775 would signal a further advance to 800*. Rising 13-week Twiggs Money Flow suggests buying pressure. Reversal below 740 is most unlikely.
* Target calculation: 740 + ( 740 – 680 ) = 800
TSX 60 VIX is above 15 but still in the low risk range.
Dow Jones Industrial Average broke resistance at 15700, ending the consolidation of recent months and signaling an advance to 16600*. Expect retracement to test the new support level in the next few weeks. Respect would confirm the advance. Penetration of the descending trendline on 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 15500 is unlikely, but would warn of another test of primary support at 14800.
* Target calculation: 15700 + ( 15700 – 14800 ) = 16600
The S&P 500 is testing short-term resistance at 1775. Breakout would offer a short-term target of 1800*. Bearish divergence on 13-week Twiggs Money Flow appears to have ended. Reversal below 1750 is unlikely at present, but would indicate a correction to at least 1710.
* Target calculation: 1775 + ( 1775 – 1750 ) = 1800
CBOE Volatility Index (VIX) below 15 continues to indicate low market risk.
The Nasdaq 100 continues its accelerating up-trend, with Twiggs Money Flow indicating strong buying pressure. Short retracement is likely and breakout above 3400 would suggest another advance. Accelerating trends, or blow-offs, enjoy rapid gains but inevitably end with a sharp fall.
* Target calculation: 2900 + ( 2900 – 2500 ) = 3400
