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Nasdaq warns of broad market correction

Tech stocks fell sharply, with the Nasdaq 100 closing below support at 7400, warning of a correction. Twiggs Money Flow (21-day) cross below zero indicates medium-term selling pressure. Follow-through of the index below 7300 would signal a correction to test 7000.

Nasdaq 100

The S&P 500 has so far respected support at 2870. Breach would confirm  a broad market correction and test the rising LT trendline at 2800.

S&P 500

Asia

In China, the Shanghai Composite Index is headed for another test of primary support at 2650. Trend Index peaks at/below zero indicate long-term selling pressure. Breach of 2650 would offer a long-term target of 2000, the 2014 low.

Shanghai Composite Index

India’s Nifty is undergoing a strong correction. Breach of support at 10,000 would warn of a primary down-trend.

Nifty Index

Europe

Dow Jones Euro Stoxx 50 is again testing primary support at 3300. A Trend Index peak at zero warns of mounting selling pressure. Breach of 3300 would warn of a primary decline, with a target of 3000.

DJ Euro Stoxx 600 Index

The Footsie is also testing primary support, at 7250, but a recovering Trend Index indicates buying pressure.

FTSE 100 Index

Rising US interest rates are already hurting developing economies like India and China, and a looming US-China trade war would threaten a global contraction.

Only when the tide goes out do you discover who’s been swimming naked.

~ Warren Buffett

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ASX 200 correction

The ASX 200 broke support at 6120/6150, signaling a correction. Expect support at the rising long-term trendline at 6000. Penetration of the trendline would warn that the primary up-trend is faltering.

ASX 200

Banks lead the decline, with ASX 300 Banks index headed for a test of primary support at 7300. A Trend Index peak below zero would warn of strong selling pressure. Breach of 7300 would signal another decline. Follow-through below 7000 would present a long-term target of 5000, the 2011 low.

ASX 300 Banks Index

I am cautious on Australian stocks, especially banks, and hold over 30% cash in the Australian Growth portfolio.

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ASX 200: Miners rally but banks a worry

The ASX 200 found support at 6120/6150, with a long tail indicating buying interest. Follow-through above 6250 would suggest another advance. Breach is now unlikely but would warn of a test of the rising long-term trendline at 6000.

ASX 200

A rally on resources stocks helped support the overall index. Expect the ASX 300 Metals & Mining index to test 4000.

ASX 300 Metals & Mining

Miners were helped by a weakening Aussie Dollar. Breach of support at 71 US cents offers a target of 69 cents. Trend Index peaks below zero warn of strong selling pressure.

AUDUSD

Banks, on the other hand, are weakening. The ASX 300 Banks index  broke support at 7700, with a declining Trend Index warning of selling pressure. Expect a test of primary support at 7300.

ASX 300 Banks Index

Falling broad money and credit growth warn of a contraction — unless an unlikely Chinese-led mining boom can keep the wolf from the door.

Broad Money and Credit Growth

House prices are falling.

House Prices

Returns on bank equity are declining due to increased capital requirements, lower credit growth and narrow margins.

Banks Return on Equity

I remain cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.

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S&P 500 cracks trendline

The S&P 500 penetrated its secondary trendline, indicating a correction to test support at the LT trendline at 2800. Shorter-term 21-day Twiggs Money Flow crossed below zero to warn of a secondary correction. Follow-through below the January high at 2870 would confirm.

S&P 500

Nasdaq 100 breach of 7400 would also confirm, signaling a correction to test support at 7000.

Nasdaq 100

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Treasury yields confirm bond bear market

10-Year Treasury yields respected their new support level at 3.00%, confirming a primary advance.

10-year Treasury Yield

Breakout above 3.00% also completes a double-bottom reversal, signaling the end of a three-decade-long secular bull market in bonds.

LT 10-year Treasury Yield

The yield differential between 10-year and 3-month Treasuries is declining but a flat yield curve does not warn of a recession. Only if the yield differential crosses below zero, with short-term yields rising faster than long-term, will there be a recession warning.

Real returns on long-term bonds — the gap between the green and blue lines below — remain near record lows.

1981 to 2018: 10-Year Treasury Yields and GDP Implicit Price Deflator

Only if the gap widens (real returns rise significantly) are we likely to see downward pressure on stock valuations, with falling price-earnings multiples.

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East to West: Trade tariffs spark rally

Commodities rallied and Asian stocks found support after a three-month sell-off.

DJ-UBS Commodity Index

From Reuters (September 19):

Copper jumped to its highest in three weeks on Wednesday, boosted by a weaker dollar after a new round of U.S.-China trade tariffs were not as high as previously expected.

China will levy tariffs on about $60 billion worth of U.S. goods in retaliation for U.S. tariffs on $200 billion worth of Chinese goods. Washington’s new duties, however, were set at 10 percent for now, rising to 25 percent by the end of the year, rather than starting immediately at 25 percent…….

“In some ways the bad news had been priced into the markets and, if anything, the news on trade had been slightly less severe than we had thought it would be,” said Capital Economic analyst Caroline Bain.

“It’s still too early to talk about this as sustainable … it just seems to be a bit of a relief rally after all of the bad news.”

The Shanghai Composite Index rallied off primary support at 2650, a slight bullish divergence on the Trend Index signaling short-term buying pressure. Penetration of the descending trendline would suggest that a bottom is forming.

Shanghai Composite Index

Japan’s Nikkei 225 is testing its January high at 24,000.

Nikkei 225 Index

India’s Nifty is testing support at 11,000. Long tails indicate buying pressure. Respect of support would signal another advance.

Nifty Index

Europe

Dow Jones Euro Stoxx 50 rallied off primary support at 3300 but is yet to break the down-trend.

DJ Euro Stoxx 600 Index

The Footsie also rallied, finding support at 7250, but a declining Trend Index warns of continued selling pressure.

FTSE 100 Index

North America

The S&P 500 rallied off the new support level at 2875 and is likely to test its long-term target of 3000.

S&P 500

The Nasdaq 100, however, continues to test support at 7700. Breach would warn of a correction to test 7000.

Nasdaq 100

Canada’s TSX 60 found support at 950 but declining peaks on the Trend Index continue to warn of selling pressure.

TSX 60 Index

Markets are dominated by one concern, a US-China trade war, and volatility is likely to remain high until a resolution is found.

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Aussie gold stocks rally

Gold continues to find resistance at $1210/ounce. Trend Index peaks below zero warn of selling pressure. Respect of resistance would indicate another decline and a long-term target of the 2015 low at $1050/ounce.

Spot Gold in USD

Currencies

The PBOC is supporting the Yuan at 14.5 US cents.

CNY/USD

Support for the Yuan is driving down the Dollar. Dollar Index breach of support at 95 warns of a correction to test 91. Bearish divergence on the Trend Index warns of selling pressure. A falling Dollar is likely to boost demand for gold.

Dollar Index

The Australian Dollar benefited from the weaker greenback, rallying to test resistance at 73/73.5 US cents. Trend Index peaks below zero continue to warn of long-term selling pressure. Respect of resistance is likely and would signal a test of the 2015/2016 low at 70 US cents.

Australian Dollar/USD

Gold Stocks

Australian gold stocks rallied despite the strengthening Aussie Dollar. The All Ordinaries Gold Index (XGD) is likely to encounter stiff resistance between 4900 and 5100.  A Trend Index peak below zero would warn of further selling pressure and continuation of the down-trend.

All Ordinaries Gold Index

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ASX 200: Banks lack support but miners receive a boost

The ASX 200 correction continues to test medium-term support at 6150. Small candles on the weekly chart indicate a lack of enthusiasm from buyers and support is unlikely to hold. Breach would signal a test of the rising long-term trendline at 6000.

ASX 200

The ASX 300 Banks index continues to test support at 7700. Declining Trend Index warns of selling pressure. Breach of support is likely and would signal a test of primary support at 7300.

ASX 300 Banks Index

The ASX 300 Metals & Mining, however, received a boost from stronger commodity prices and is testing resistance at 3750. A Trend Index peak near zero is less likely but would warn of selling pressure and a primary down-trend.

ASX 300 Metals & Mining

I remain cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.

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East to West: Asian stocks find support

Asian stocks are finding support after a sell-off over the last three months.

The Shanghai Composite Index is showing a slight bullish divergence on the Trend Index. This is secondary in size and suggests a bear market rally.

Shanghai Composite Index

South Korea’s Seoul Composite Index displays a stronger bullish divergence. Breakout above 2350 and the descending trendline is still unlikely but would indicate that a bottom is forming.

Seoul Composite Index

Japan’s Nikkei 225 broke through resistance at 23,000, signaling an advance to the January high at 24,000.

Nikkei 225 Index

India shows strong buying pressure, with long tails on the Nifty suggesting another strong advance.

Nifty Index

Europe

Dow Jones Euro Stoxx 600 is trending lower. Support at 374 is secondary but the Trend Index near zero indicates hesitancy.

DJ Euro Stoxx 600 Index

The Footsie found medium-term support at 7250 but a declining Trend Index warns of another test of primary support at 6900/7000.

FTSE 100 Index

North America

The S&P 500 retracement respected support at 2875, suggesting an advance to the long-term target of 3000.

S&P 500

Canada’s TSX 60 on the other hand is undergoing a correction, perhaps exacerbated by concerns over NAFTA. Expect support at 935/940.

TSX 60 Index

Nothing much has changed. While Japan and India are bullish, China and South Korea remain in a bear market. Europe looks hesitant, while the S&amp:P 500 continues in a strong bull market.

The generally accepted view is that markets are always right — that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I start with the opposite view. I believe the market prices are always wrong in the sense that they present a biased view of the future.

~ George Soros

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ASX 200: Correction to test 6000

The ASX 300 Banks index continues to test support at 7700. Declining Trend Index warns of medium-term selling pressure. Breach of support is likely and would signal a test of primary support at 7300.

ASX 300 Banks Index

The ASX 300 Metals & Mining index is also headed for a test of primary support, at 3400. A Trend Index peak at/below zero would warn of rising selling pressure and a primary down-trend.

ASX 300 Metals & Mining

Commodities are already in a primary down-trend but Australian stocks are partially cushioned by a weakening Aussie Dollar.

DJ-UBS Commodity Index

The ASX 200 found medium-term support at 6150 but this unlikely to hold. Bearish Divergence on the Trend Index warns of medium-term selling pressure. Expect a correction to test the rising long-term trendline at 6000.

ASX 200

I remain cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.