Analysis of the global economy
The S&P 500 broke support at 1500 and is headed for support at 1475.
On the weekly chart we can see that a correction below 1475 would target support at 1425 (the secondary trendline). Only primary support at 1350, however, would signal a reversal. A 63-day Twiggs Momentum trough above zero would indicate continuation of the up-trend, while retreat below zero would suggest a primary reversal.
The S&P 500 found support at 1500 and is headed for a re-test of resistance at 1525/1530. Bearish divergence on 21-day Twiggs Money Flow warns of mild selling pressure. Breakout above resistance would negate this, while reversal below 1500 and the rising trendline would warn of a correction.
Breach of the secondary trendline (above) would indicate a correction to test primary support at 1350. Recovery of 63-day Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.
* Target calculation: 1550 + ( 1550 – 1350 ) = 1750
The Nasdaq 100 is weaker, with bearish divergence on 13-week Twiggs Money Flow warning of a primary trend reversal. Breakout below primary support at 2500 would confirm, offering a target of 2100*.
* Target calculation: 2500 + ( 2900 – 2500 ) = 2100
Scott Minerd, Chief Investment Officer at Guggenheim Funds, writes:
Though some may be cheered by the relative policy successes this time around, at the current trajectory it will still take almost as long for total employment to fully recover as it did in the 1930s. While job loss was not as severe this time, the recovery in job creation has been much slower. Although nominal and real gross domestic production have returned to new highs on a per capita basis, we are still below 2007 levels. In the same way the Great Depression and the depressions before it lasted eight to 10 years, we will likely continue to see constrained economic growth until 2015-2016 roughly nine years after U.S. home prices began to slide.
Read more at Scott Minerd: The Keynesian Depression | John Mauldin – Outside the Box.
From Brian Carney’s weekend interview with Bernard Connolly:
…But even if the Greeks were undisciplined, he says, “both the sovereign-debt crisis and the banking crisis are symptoms, not causes. And the underlying problem has been that there was a massive bubble generated in the world as a whole by monetary policy—but particularly in the euro zone” by European Central Bank policy.
The bubble formed like this: When countries such as Ireland, Greece and Spain joined the euro, their interest rates immediately dropped to near-German levels, in some cases from double-digit territory. “The optimism created by these countries’ suddenly finding that they could have low interest rates without their currencies collapsing, which had been their previous experience, led people to think that there was a genuine rate-of-return revolution going on,” he says.
There had been an increase in the rates of return in Ireland “and to some extent in Spain” in the run-up to euro membership, thanks to structural reforms in those countries in the pre-euro period. But by the time the euro rolled around, money was flowing into these countries out of all proportion to the opportunities available…..
Read more at The Weekend Interview with Bernard Connolly: Why the Euro Crisis Isn't Over – WSJ.com.
Simon Wren-Lewis, economics professor at Oxford University, writes:
What George Osborne did with his austerity programme was the equivalent of putting a sick patient on a starvation diet accompanied by cold showers. The UK economy without accelerated austerity would still have been in poor shape, but under George Osborne it has been a disaster.
Read more at mainly macro: The final verdict on George Osborne as Chancellor.
Quick summary of the Chinese property bubble by Gillem Tulloch of Forensic Asia Limited.
The S&P 500 retreated below 1525, heading for support at 1500. Failure of support would test the secondary trendline at 1475. Bearish divergence on 21-day Twiggs Money Flow warns of selling pressure, but may not be sufficient to start a full-blown correction.
Breach of the secondary trendline at 1475 would indicate a test of primary support at 1350. Recovery of 63-day Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.
* Target calculation: 1550 + ( 1550 – 1350 ) = 1750
The S&P 500 is testing short-term resistance at 1525 on the daily chart. Breakout would signal an advance to 1550. Bearish divergence on 21-day Twiggs Money Flow, however, warns of retracement to the rising trendline.
The quarterly chart warns us to expect strong resistance at the 2000/2007 highs of 1550/1575. Recovery of 63-day Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.
* Target calculation: 1550 + ( 1550 – 1350 ) = 1750
The Nasdaq 100 is testing resistance at 2800 on the monthly chart. Breakout would suggest a primary advance to 3200* but bearish divergence on 13-week Twiggs Money Flow warns of a reversal. Breach of the rising trendline would strengthen the signal.
* Target calculation: 2800 + ( 2800 – 2400 ) = 3200
I repeat my warning of the last few weeks:
These are times for cautious optimism. Central banks are flooding markets with freshly printed money, driving up stock prices, but this could create a bull trap if capital investment, employment and corporate earnings fail to respond.
Will Tanner writes:
At face value, the Swedish welfare state is an unlikely poster child for sustainable government. In 2011-12, government spending was 53.1 per cent of GDP, paid for by taxes on the average worker of 42.7 per cent. The country’s “cradle to grave” social security system has long been used as evidence that government can and should be bigger, not smaller. Despite this, the Swedish state is showing policymakers the world over how to deliver high quality services at low cost.
Read more at Sweden has reformed its welfare state to deliver both efficiency and equity – the UK should learn from its example. | EUROPP.
David Francis writes:
The U.S. and European Union together already account for nearly half of global GDP and a third of global trade flows, with some $2.7 billion worth of goods and services exchanged daily. [A trade agreement] …..would increase trade between the partners by $120 billion within five years, according to a study by the U.S. Chamber of Commerce. At the same time, it would add some $180 billion to U.S.-EU gross domestic product. Estimates put forth by the European Commission suggest a new trade pact could increase annual GDP by 0.5 percent in the EU and 0.4 percent in the U.S. by 2027.
Read more at U.S.-EU Trade Deal: Obama Makes Risky Bet on Europe’s Future | Fiscal Times.
