Category: Market Insights

Australia

The ASX 200 broke through the band of support between 5650 and 5550, warning of a test of primary support at 5120. Declining 13-week Twiggs Money Flow indicates medium-term selling pressure, typical of a secondary correction not a reversal.

If we look at the two biggest sectors on a monthly chart, Metals & Mining has been in a down-trend since 2011 and is testing the lows of 2008. The Australian economy withstood the decline primarily because of low employment in the mining sector relative to its size.

Banks held up surprisingly well on the back of a resilient real estate market — I would call it a housing bubble because of the high average price to household income ratio. Pressure is mounting to improve bank capital ratios (especially after the Murray Inquiry) and curb aggressive lending. The long-awaited correction is under way and likely to find support between 82 and 84. The weight of the sector means the ASX 200 index is likely to follow.

Twiggs Momentum, however, shows a bearish divergence and has crossed below zero, warning of a (sector) reversal. Breach of primary support would strengthen the signal.

North America

The S&P 500 is ranging in a bullish narrow band between 2100 and 2120 on the daily chart. 21-Day Twiggs Money Flow holding above zero suggests moderate buying pressure. Upward breakout would signal an advance to 2200*, while reversal below 2100 would warn of a correction to 2040/2050. Look for confirmation from the Dow Jones Industrial Average.

* Target calculation: 2120 + ( 2120 – 2040 ) = 2200

CBOE Volatility Index (VIX) indicates low risk typical of a bull market. The 63-day moving average holding below 20 reinforces the signal.

Dow Jones Industrial Average found support at 18000. Expect another test of resistance at 18300. Breakout would offer a target of 19000*. Reversal below 18000 is unlikely, but would warn of a correction to test the primary trendline and support at 17000.

* Target calculation: 18300 + ( 18300 – 17600 ) = 19000

Canada’s TSX 60 continues to test resistance at 890. Breakout would confirm the end of the correction and indicate another test of long-term resistance at 900. 13-Week Twiggs Momentum holding above zero suggests a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.

* Target calculation: 900 + ( 900 – 800 ) = 1000

Europe

Germany’s DAX retreated from resistance at 12000. Declining 13-week Twiggs Money Flow warns of further selling pressure. Reversal below 11000 is unlikely, but would offer a target of 10000*.

* Target calculation: 11000 – ( 12000 – 11000 ) = 10000

The Footsie is ranging in a bullish narrow band on the weekly chart. Gradual decline of 13-week Twiggs Money Flow is typical of a secondary correction or consolidation. Breakout above 7100 would confirm a primary advance, offering a long-term target of 8000*. Reversal below 6900 is unlikely, but would warn of a correction to 6700.

* Target calculation: 7000 + ( 7000 – 6000 ) = 8000

Asia

The Shanghai Composite is testing 5000 after a brief retracement to 4500. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. I am wary of long-term prospects for the Chinese economy and believe the current accelerating up-trend is likely to end in a blow-off.

* Target calculation: 3500 + ( 3500 – 2500 ) = 4500

Japan’s Nikkei 225 Index is headed for a target of 22000*, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure.

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex is headed for a test of primary support at 26500. Succesive peaks below zero on 13-week Twiggs Money Flow warn of reversal to a primary down-trend. Breach of primary support would confirm. Recovery above 28000 is unlikely, but would signal another test of 30000.

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Life is a school of probability.

~ Walter Bagehot

Breakouts on the S&P 500 and in China and Japan, together with buying support across Europe and Asia, indicate a broad resurgence.

North American Stocks

The S&P 500 is retracing to test the new support level at 2120 after its recent breakout. Respect of support would confirm a further advance to 2200*. 21-Day Twiggs Money Flow is oscillating in a narrow range above the zero line, suggesting mild buying pressure. Upward breakout would signal another advance, while reversal below zero would warn of a correction.

* Target calculation: 2120 + ( 2120 – 2040 ) = 2200

CBOE Volatility Index (VIX) at 12 continues to indicate low risk typical of a bull market.

St Louis Fed Financial Stress index below -1.0 likewise displays low levels of stress in financial markets.

Dow Jones Industrial Average continues to test resistance at 18300. Buying pressure remains positive and breakout would offer a target of 19000*, confirming the S&P 500 signal. Reversal below 18000 is unlikely, but would warn of a correction to test the primary trendline and support at 17000.

* Target calculation: 18300 + ( 18300 – 17600 ) = 19000

Canada’s TSX 60 is testing resitance at 890. Breakout would signal the end of the correction and another test of long-term resistance at 900. 13-Week Twiggs Momentum holding above zero continues to indicate a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.

* Target calculation: 900 + ( 900 – 800 ) = 1000

Europe

Germany’s DAX broke its descending trendline, indicating another attempt at 12500. A 13-week Twiggs Money Flow trough above zero would confirm long-term buying pressure. Reversal below 11000 is unlikely.

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* Target calculation: 12500 + ( 12500 – 12000 ) = 13000

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Shallow retracement on the Footsie suggests buying pressure. Recovery of 13-week Twiggs Money Flow above its descending trendline strengthens the signal. Breakout above 7100 would confirm a primary advance. The long-term target is 8000*.

* Target calculation: 7000 + ( 7000 – 6000 ) = 8000

Asia

The Shanghai Composite broke resistance at 4500, indicating continuation of its strong advance. 13-Week Twiggs Money Flow troughs high above zero reflect long-term buying pressure.

* Target calculation: 3500 + ( 3500 – 2500 ) = 4500

Economic data, however, continues to warn of a slow-down.

Barclays says China slide "undeniable", here showing M2 at multi-year lows pic.twitter.com/3i8MFxGA5k

— David Schawel (@DavidSchawel) May 22, 2015

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Japan’s Nikkei 225 Index broke resistance at 20000, suggesting an advance to 22000*. Recovery of 13-week Twiggs Money Flow above the descending trendline would strengthen the signal.

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex respected support at 26500 and is now testing resistance at 28000. Breakout above 28000 and the descending trendline would signal another attempt at 30000. Recovery of 13-week Twiggs Money Flow above zero would strengthen the signal. Another (TMF) peak below zero is unlikely, but would warn of a primary down-trend.

Australia

The ASX 200 found support between 5650 and 5550, highlighted by the latest long-tailed candle. Recovery above 5750 would signal the correction is over and another test of 6000 is likely. Mild decline on 13-week Twiggs Money Flow indicates medium-term selling pressure — not a reversal. Breach of 5550 is unlikely, but would warn of a test of primary support at 5120.

* Target calculation: 6000 + ( 6000 – 5750 ) = 6250

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Teach us that wealth is not elegance; that profusion is not magnificence; and that splendour is not beauty. Teach us that taste is a talisman which can do greater wonders than the millions of the loanmonger. Teach us that to vie is not to rival, and to imitate not to invent. Teach us that pretension is a bore. Teach us that wit is excessively good-natured, and, like champagne, not only sparkles, but is sweet. Teach us the vulgarity of malignity. Teach us that envy spoils our complexions, and that anxiety destroys our figure.

~ Benjamin Disraeli, The Young Duke (1831)

Stocks are recovering from their recent soft patch and breakout above resistance is likely, signaling further gains.

North American Stocks

The S&P 500 is testing medium-term resistance at 2120. Breakout would signal an advance to 2200*. Three weekly candles with long tails reflect medium-term buying pressure, while a 13-week Twiggs Money Flow trough high above zero indicates long-term pressure. Retracement that respects the new support level at 2100 would further strengthen the bull signal.

* Target calculation: 2120 + ( 2120 – 2040 ) = 2200

CBOE Volatility Index (VIX) at 12 indicates low risk typical of a bull market.

Dow Jones Industrial Average is testing resistance at 18300. Buying pressure appears similar to the S&P 500 and breakout would offer a target of 19000*.

* Target calculation: 18300 + ( 18300 – 17600 ) = 19000

Canada’s TSX 60 found support at 870. 13-Week Twiggs Momentum holding above zero continues to indicate a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.

* Target calculation: 900 + ( 900 – 800 ) = 1000

Europe

Germany’s DAX encountered support above 11000. Penetration of the descending trendline would indicate the correction is over and follow-through above 12000 would suggest a primary advance. Declining 13-week Twiggs Money Flow warns of continued selling pressure and a further test of 11000, but respect of support remains likely and would provide a solid base for further advances.

The Footsie also displays long tails, suggesting medium-term buying support, but declining 13-week Twiggs Money Flow indicates continued selling pressure. Breach of 6900 would warn of a correction to 6700, but further losses are unlikely at present. Recovery above 7100 would confirm the long-term breakout, offering a target of 8000*.

* Target calculation: 7000 + ( 7000 – 6000 ) = 8000

Asia

The Shanghai Composite is consolidating between 4000 and 4500. Breach of either of these levels would signal future direction. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure, favoring the downside.

* Target calculation: 3500 + ( 3500 – 2500 ) = 4500

Short retracement on Japan’s Nikkei 225 Index is a bullish sign. Breakout above 20000 would offer a target of 22000*. Declining 13-week Twiggs Money Flow reflects medium-term selling pressure; recovery above the descending trendline would be a bullish sign.

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex found support between 26500 and 27000. Long tails suggest medium-term buying pressure. Recovery above 28000 and the descending trendline would suggest another attempt at 30000. But 13-week Twiggs Money Flow remains below zero, warning of (long-term) selling pressure. Another peak below zero would warn of breach of primary support and a reversal.

Australia

ASX 200 support at 5750, 5650 or 5550: which is most relevant? Judging by some of the questions received, I succeeded in confusing a number of readers. Here is a brief summary:

• 5750 acted as medium-term support until the beginning of May, when breach of 5750 and the rising trendline warned of a correction.
• 5750 transformed into medium-term resistance and penetration would suggest the correction is over.
• There is a strong band of support between the two recent (2014) highs of 5650 and 5550.
• Breach of this band (i.e. below 5550) would indicate a test of primary support at 5120.
• Respect (i.e. 5550 intact) would provide a solid base for a rally and a further (primary) advance if resistance at 6000 is broken.

Mild decline of 13-week Twiggs Money Flow suggests medium-term selling pressure — not a reversal. Recovery above 5750 remains more likely than breach of 5550.

* Target calculation: 6000 + ( 6000 – 5750 ) = 6250

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I think I’ve done the best I could have done. But I keep wanting to play better, go further. There are so many sounds I still want to make, so many things I haven’t yet done. When I was younger I thought maybe I’d reached that peak. But I’m 86 now, and if I make it through to next month, I’ll be 87. And now I know it can never be perfect, it can never be exactly what it should be, so you got to keep going further, getting better.

~ Riley (B.B.) King