Category: Stock Markets

Analysis of major stock markets around the world.

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S&P 500 and Europe encounter resistance

The S&P 500 pulled back from resistance at 1250 and is headed for a test of short-term support at 1200. Failure would test primary support at 1100, while breakout above 1250 would signal an advance to 1400*. Rising 21-day Twiggs Money Flow continues to indicate secondary buying pressure.

S&P 500 Index

* Target calculation: 1250 + ( 1250 – 1100 ) = 1400

Dow Jones Europe index also ran into resistance at 250, bearish divergence on 21-day Twiggs Money Flow warning of short-term selling pressure. Reversal below 230 would test primary support at 205/210, while breakout above 250 would signal an advance to 290*.

Dow Jones Europe Index

* Target calculation: 250 + ( 250 – 210 ) = 290

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Canada TSX 60

The TSX 60 index also shows a small bullish divergence on 13-week Twiggs Money Flow, suggesting secondary buying pressure. Expect a rally to the descending trendline at 720. Respect would signal another test of primary support at 640. Breakout remains unlikely, but would offer a target of 800*.

TSX 60 Index

* Target calculation: 720 + ( 720 – 640 ) = 800

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Europe approaches zero hour

As I mentioned in an earlier post, there is bound to be a relief rally when EU leaders announce details of their rescue package — followed by a pull-back when traders figure out the costs. The danger is that Germany and France do an “Ireland” and rescue the banks but put themselves at risk. Both have public debt to GDP ratios close to 80 percent and it would not take much to push them into the danger zone. A down-grade would raise their cost of funding and place their own budgets under pressure. If they are down-graded then the kids are home alone — there will be no adults left in the room.

The FTSE 100 displays a decent bullish divergence on 13-week Twiggs Money Flow, warning of strong buying pressure. Breakout above 5600 would offer a target of 6000*, but expect retracement to test the new support level. Respect would confirm the advance.

FTSE 100 Index

* Target calculation: 5500 + ( 5500 – 5000 ) = 6000

Germany’s DAX is headed for 6500, but a weaker recovery on Twiggs Money Flow suggests this is a bear market rally. Respect of 6500 would indicate another test of 5000.

DAX Index

The French CAC-40 index displays secondary buying pressure. Respect of 3700 would signal another test of primary support at 2800.

CAC-40 Index

Madrid rallied to test resistance at 900. Again buying pressure on 13-week Twiggs Money Flow appears secondary. Respect of 900 would signal a decline to the 2009 low of 700. Breakout, however, would signal a rally to test the descending trendline.

Madrid General Index

Italy’s MIB index is testing the descending trendline near 16500. Respect would test the 2009 low at 12500. Breakout would offer a target of 19000*.

FTSE MIB Index

* Target calculation: 16 + ( 16 – 13 ) = 19

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2008 Deja Vu

Early May 2008, the S&P 500 index recovered above resistance at the former primary support level of 1400 on its second attempt. 13-Week Twiggs Money Flow broke back above zero, indicating secondary buying pressure. Breakout was followed by two pull-backs in May. The first made a false break below the new support level; the second followed through, commencing a 50% decline to 700.

S&P 500 Index Weekly Chart - 2008

We are now at a similar watershed. Expect retracement in the week ahead to test the new support level at 1250. Respect of support would strengthen the signal, but beware of any penetration. Follow-through above 1300 would signal that the (immediate) danger is over. Until then, consider this a bear market.

S&P 500 Index Weekly - 2011

* Target calculation: 1250 + ( 1250 – 1100 ) = 1400

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Dow not yet out of the woods

Dow Jones Industrial Average followed through on its breakout above the 10600-11700 trading range but expect some resistance at 12000. The index looks set for a decent rally after narrow consolidation below resistance at 11700. Target for the breakout is 12600*.

Dow Jones Industrial Average

* Target calculation: 11600 + ( 11600 – 10600 ) = 12600

Yields on 10-year Treasury notes also rallied as funds flowed back into stocks, but we are not yet out of the woods.

10-Year Treasury Yield

There is bound to be a relief rally when EU leaders announce details of their rescue package — followed by a pull-back when traders figure out the costs involved. The danger is that Germany and France do an “Ireland” and rescue the banks but put themselves at risk. Both have public debt to GDP ratios close to 80 percent and it would not take much to push them into the danger zone. If they are down-graded then the kids are home alone — there will be no adults left in the room. A down-grade would raise their cost of funding and place their own budgets under pressure.

The S&P 500 is also testing resistance at 1260; breakout would confirm a Dow signal. 13-Week Twiggs Money Flow is rising but no bullish divergence means this could be secondary (medium-term) buying pressure.

S&P 500 Index

* Target calculation: 1120 + ( 1220 – 1120 ) = 1320

Nasdaq 100 index displays an ascending broadening wedge as it approaches resistance at 2400. The ascending wedge is a bearish pattern: Bulkowski maintains that it breaks out downward 73% of the time. Target would be the base of the pattern at 2000. Bullish divergence on 13-Week Twiggs Money Flow, however, indicates strong buying pressure. Breakout above 2450 would signal a primary advance to 2600*.

Nasdaq 100 Index

* Target calculation: 2400 + ( 2400 – 2200 ) = 2600

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US Stock Market: Bulls vs. Bears; Historians vs. Risk Takers? | The Big Picture

Very negative pictures can be painted on the outcomes of the European sovereign debt crisis. Other negatives can point to more deteriorating factors in the United States, such as the weak housing market and the high unemployment rate. In our view, all of these factors are known. They have been established for some time. They have been mixed into the pricing expectations in markets. In essence, they are “old news”.

via US Stock Market: Bulls vs. Bears; Historians vs. Risk Takers? | The Big Picture.

I have heard this often of late: “all of these risks are already priced into the market”. Isn’t that the same old Efficient Market Hypothesis that failed so spectacularly? The market will price the risk, but there is no guarantee that the risk is correctly calculated. Look no further than June 2007 to May 2008 for an example of how the market priced risk at the start of the sub-prime crisis.

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Fedex & UPS

Bellwether transport stock Fedex displays a bear market rally with a target of 80. UPS is even stronger, having broken out from its trading range of the last 2 months to signal a re-test of its 2011 high. Not enough to indicate an up-turn but encouraging all the same.

Fedex and UPS

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TSX 60 rally

Canada’s TSX 60 index is headed for a test of the descending trendline and resistance at 730 — another bear market rally.  13-Week Twiggs Money Flow oscillating around the zero line indicates hesitancy. Respect of resistance would indicate another test of support at 650*.

TSX 60 Index

* Target calculation: 650 – ( 730 – 650 ) = 570

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Europe

Germany’s DAX index is testing resistance at 6000. Penetration of the descending trendline on 13-week Twiggs Money Flow indicates no more than a secondary reaction (bear market rally). Breakout above 6000 would offer a target of 6500, while respect of resistance would re-visit primary support at 5000.

DAX Index

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

The FTSE 100 is headed for a test of 5600 after breaking resistance at 5400. Rising 13-week Twiggs MoneyFlow indicates a strong bear market rally rather than a reversal.

FTSE 100 Index

* Target calculation: 4800 – ( 5600 – 4800 ) = 4000

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S&P 500 monthly chart

A monthly chart of the S&P 500 index gives a clearer picture. Although the Nasdaq is advancing strongly, the S&P 500 is stuck below its long-term trendline. Note the similarity to March-May 2008 rally. Breakout above 1250 would be a bullish sign, similar to the May 2008 breakout above 1400, but retreat below the former resistance level (1250) would give a strong bear warning. Likewise, a 63-day Twiggs Momentum peak below the zero line would signal a strong primary down-trend.

S&P 500 Index Monthly

* Target calculation: 1100 – ( 1250 – 1100 ) = 950

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