Stock Markets Archives - Page 108 of 170

November 12, 2013

Dow signals fresh advance

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.

Dow Jones Industrial Average

* 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.

S&P 500

* Target calculation: 1775 + ( 1775 – 1750 ) = 1800

CBOE Volatility Index (VIX) below 15 continues to indicate low market risk.

VIX Index

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.

Nasdaq 100

* Target calculation: 2900 + ( 2900 – 2500 ) = 3400

November 6, 2013

Is the market in a bubble?

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.

US Household Debt

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.

US Household Debt

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.

Australia

Australian personal debt (included with household debt in the US chart) and corporate debt growth are both close to zero. Household debt, while also low, appears to have bottomed. Resurgence above 10% would be cause for concern.

RBA Household Debt

November 5, 2013

Asia: India breaks out, ASX near target

India’s Sensex broke out above its 2007 and 2010 highs at 21000. Expect retracement to test the new support level. Respect would signal a primary advance with a target of 24000*. Rising 13-week Twiggs Money Flow suggests medium-term buying pressure. Reversal below 20500 is unlikely, but would warn of a correction to primary support at 18000.

Sensex

* Target calculation: 21000 + ( 21000 – 18000 ) = 24000

Japan’s Nikkei 225 again respected resistance at 15000. Declining 13-week Twiggs Money Flow suggests medium-term selling pressure. Breakout above 15000 would signal an advance to 17500*, but reversal below the October low is more likely and would test primary support at 13200, penetration of the rising trendline warning of trend weakness.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 12500 ) = 17500

Singapore’s Straits Times Index is heading for another test of long-term resistance at 3300. Breakout would signal a primary advance to 3600*. But 13-week Twiggs Momentum below zero warns of a primary down-trend and reversal below the rising trendline would strengthen the signal. Breach of support at 3000 would confirm a primary down-trend.

Straits Times Index

* Target calculation: 3300 + ( 3300 – 3000 ) = 3600

China’s Shanghai Composite is consolidating below resistance at 2150/2160. Breakout below 2100 would signal a correction to primary support at 1950, while recovery above the upper trend channel at 2200 would suggest another advance; follow-through above 2250 confirming a primary up-trend. Declining 21-day Twiggs Money Flow indicates medium-term selling pressure, but respect of the zero line would suggest long-term support.

Shanghai Composite Index

Hong Kong’s Hang Seng is again testing resistance at 23500 on the weekly chart. Breakout would signal a primary advance, with a medium-term target of 24500 and a long-term target of 28000*. Follow-through above 24000 would confirm. Rising 13-week Twiggs Money Flow suggests medium-term buying pressure; a trough above zero would strengthen the signal. Reversal below 22500 is unlikely, but would warn of a correction to 21500 or the primary trendline.

Hang Seng Index

* Target calculation: 24000 + ( 24000 – 20000 ) = 28000

The ASX 200 found short-term support at 5390, short retracement suggesting buying pressure. Penetration of the descending trendline on 21-day Twiggs Money Flow, after a mild bearish divergence, would confirm this. Breakout above 5450 would test 5500, exceeding the target for the current advance. Respect of resistance remains as likely, however, and would warn of a correction to 5250/5300; confirmed if support at 5390 is broken. In the longer term, another Twiggs Money Flow trough above zero would suggest a healthy primary up-trend.

ASX 200

* Target calculation: 5300 + ( 5300 – 5150 ) = 5450

November 4, 2013

Europe tests key resistance levels

The monthly chart of the FTSE 100 is testing resistance at the 2007 high of 6750. Rising 13-week Twiggs Money Flow signals buying pressure. Breakout above 6750 would test the 1999/2000 high at 7000*. Respect of resistance (reversal below 6650) is unlikely, but would warn of a correction to primary support.

FTSE 100

* Target calculation: 6700 + ( 6700 – 6400 ) = 7000

Germany’s DAX found short-term resistance at 9000, but rising 13-week Twiggs Money Flow again signals buying pressure. Target for the current advance is 9300*. Reversal below 8500 is most unlikely, but would warn of a correction to the primary trendline around 8000.

DAX

* Target calculation: 8500 + ( 8500 – 7700 ) = 9300

Dax Volatility remains low, indicating bullish sentiment.

DAX

Dow Jones Euro Stoxx 50 is retracing to test support at its 2009/2011 high of 3050. Rising 13-week Twiggs Momentum continues to suggest a healthy up-trend. Respect of support at 3000 would signal another advance — a bullish sign for the European economy.

Euro Stoxx 50

* Target calculation: 2850 + ( 2850 – 2500 ) = 3200

November 4, 2013

Transport: Fedex improving outlook

Bellwether transport stock Fedex has risen dramatically in recent weeks, reflecting the improving outlook for economic activity.
Fedex

UPS has enjoyed a similar surge, as has Deutsche Post AG (which owns DHL).

Deutsche Post AG

November 3, 2013

Nasdaq accelerates while Dow and S&P500 hesitate

The Nasdaq 100 continues its accelerating up-trend — as indicated by successively steeper trendlines and a rising trendline on 13-week Twiggs Momentum. Accelerating trends, or blow-offs, are well-known for rapid gains but inevitably end with a sharp fall.

Nasdaq 100

* Target calculation: 2900 + ( 2900 – 2500 ) = 3400

The CBOE Volatility Index (VIX) remains below 15, indicating low market risk.

VIX Index

The S&P 500 is edging higher on the weekly chart, but bearish divergence on 13-week Twiggs Money Flow warns of rising selling pressure. Reversal below the secondary trendline at 1700 would indicate a correction to the primary trendline and primary support at 1630.

S&P 500

* Target calculation: 1730 + ( 1730 – 1650 ) = 1810

Dow Jones Industrial Average is testing resistance at 15700. Breakout would offer a target of 16600*. Respect of the descending trendline on 13-week Twiggs Money Flow, however, would confirm the earlier bearish divergence and warn of a correction to primary support at 14800. Breach of 14800 remains unlikely, but would signal a reversal.

Dow Jones Industrial Average

* Target calculation: 15700 + ( 15700 – 14800 ) = 16600

Canada’s TSX 60 is retracing after a strong spurt. Duration of retracements reflect trend strength. Another trough above zero on 13-week Twiggs Money Flow would suggest strong buying pressure. Reversal below 740 is most unlikely, but would warn of trend weakness.

TSX 60

* Target calculation: 740 + ( 740 – 680 ) = 800

TSX 60 VIX below 15 also reflects low market risk.

TSX 60 VIX

October 28, 2013

Shanghai weakens, ASX unaffected

China’s Shanghai Composite index broke support at 2150, signaling a correction to test primary support at 1950. Declining 13-week Twiggs Money Flow indicates selling pressure. Follow-through below 2100 would confirm. Recovery above 2150 is less likely, but would suggest a bear trap.

Shanghai Composite Index

Japan’s Nikkei 225 respected resistance at 15000. Declining 13-week Twiggs Money Flow suggests medium-term selling pressure. Monday has so far posted gains and breakout above 15000 would signal an advance to 17500*, but reversal below the October low is as likely and would test primary support at 13200. Penetration of the rising trendline would warn of trend weakness.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 12500 ) = 17500

India’s Sensex respected its 2007 and 2010 highs at 21000, retracing to test support at 20500. Rising 13-week Twiggs Money Flow indicates buying pressure and breakout above 21000 would offer a long-term target of 24000*. Reversal below 20500 is unlikely, but would warn of another test of primary support at 18000.

Sensex

* Target calculation: 21000 + ( 21000 – 18000 ) = 24000

The ASX 200 posted a strong blue candle on Monday, but mild bearish divergence on 21-day Twiggs Money Flow warns the index is nearing its target and is due for retracement to test support at 5250/5300. In the longer term, however, troughs above zero reflect a healthy primary up-trend.

ASX 200

* Target calculation: 5300 + ( 5300 – 5150 ) = 5450

October 28, 2013April 18, 2024

Footsie breakout while Europe hesitates

The FTSE 100 broke resistance at 6700, indicating an advance to 7000*. Rising 13-week Twiggs Money Flow signals buying pressure. Reversal below 6600 is unlikely, but would test primary support at 6400.

FTSE 100

* Target calculation: 6700 + ( 6700 – 6400 ) = 7000

Dow Jones Euro Stoxx 50 hesitated with a doji star above long-term resistance at 3000. Expect a test of the new support level, but rising 13-week Twiggs Momentum continues to suggest a healthy up-trend. Penetration of the secondary trendline would warn of a correction to the primary trendline — around 2750.

Euro Stoxx 50

* Target calculation: 3000 + ( 3000 – 2500 ) = 3500

Spain’s Madrid General Index warns of a correction, with an evening star accompanied by strong volume. The sharp fall on 13-week Twiggs Money Flow indicates short-term selling pressure. Respect of the rising trendline would confirm the primary up-trend, offering a target of 1050*. Reversal below 900 is unlikely, but would indicate the up-trend is weakening.

Madrid General Index

* Target calculation: 900 + ( 900 – 750 ) = 1050

Germany’s DAX, however, is a lot more bullish. Respect of the new support level at 8500 offers a medium-term target of 9300*. Reversal below 8500 is now unlikely, but would warn of a correction to the primary trendline at 8000.

DAX

* Target calculation: 8500 + ( 8500 – 7700 ) = 9300

October 27, 2013

US & Canada: Rising buying pressure

The S&P 500 short retracement at 1750 is a bullish sign, confirming the advance to 1800*. Rising 21-Day Twiggs Money Flow indicates buying pressure. Reversal below 1730 is most unlikely at present, but would warn of a test of primary support at 1650.

S&P 500

* Target calculation: 1730 + ( 1730 – 1650 ) = 1810

VIX below 15 flags low market risk.

VIX Index

Dow Jones Industrial Average is headed for a test of resistance at 15700; breakout would offer a target of 16600*. Recovery above the descending trendline on 13-week Twiggs Money Flow would negate the earlier bearish divergence. Breach of 14800 is unlikely, but would warn of a reversal.

Dow Jones Industrial Average

* Target calculation: 15700 + ( 15700 – 14800 ) = 16600

The Nasdaq 100, with 13-week Twiggs Money Flow troughs well above zero, indicates strong buying pressure.

Nasdaq 100

Canada’s TSX 60 is advancing toward its target of 800*, the trough above zero on 13-week Twiggs Money Flow indicating strong buying pressure. Reversal below 740 is now most unlikely.

TSX 60

* Target calculation: 740 + ( 740 – 680 ) = 800

October 27, 2013

Saving Investors From Themselves | WSJ

Jason Zweig, in his 250th Intelligent Investor column for The Wall Street Journal, writes:

From financial history and from my own experience, I long ago concluded that regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance…….My role, therefore, is to bet on regression to the mean even as most investors, and financial journalists, are betting against it. I try to talk readers out of chasing whatever is hot and, instead, to think about investing in what is not hot. Instead of pandering to investors’ own worst tendencies, I try to push back. My role is also to remind them constantly that knowing what not to do is much more important than what to do. Approximately 99% of the time, the single most important thing investors should do is absolutely nothing.

While I agree with Jason that investors are often their own worst enemy, I would hesitate to advise anyone to invest in under-performing stocks (anticipating reversion to the mean) or to adopt a buy-and-hold strategy. Our research shows that investing in top-performing stocks (buying momentum) delivers significant outperformance over a buy-and-hold strategy in the long-term.

The risk to momentum investing is not of reversion to the mean, but of significant draw-downs when there is a broad market down-turn. Most stocks fall in a bear market, but top-performing (momentum) stocks tend to fall further. Value stocks are also likely to fall during a market down-turn and the best defense is often to move to cash or counter-cyclical investments such as bonds.

The difficulty is to identify these broad market swings with enough certainty to confidently switch your investment allocation. Common mistakes are to continually jump in and out of the market at the slightest hint of bad news, leading to expensive whipsaws, or to get caught up in the intoxicating sentiment of a bull market, blinding you to warning signs of a reversal.

I believe investors should allocate half their time to deciding what stocks to buy/sell and the other half to identifying when to be in/out of the market. Too often I see them focusing on one half while neglecting the other — usually with disastrous consequences.