Category: Stock Markets

Analysis of major stock markets around the world.

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Denial is not a river in Egypt

Dow Jones Industrial Average rallied, suggesting a second higher low above primary support at 10600/10800.  Expect a test of 11900/12000, but this does not mean the bear market is about to reverse. We are still in the early “denial stage” of the bear market, identified by sporadic bargain-hunting, high volatility and a general lack of direction. Declining volume indicates a lack of enthusiasm from buyers and sellers. Failure of primary support would change that, leading to a sharp fall to 10000*.

Dow Jones Industrial Average

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

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Flight to safety

10-Year Treasury yields fell to a new low on Friday, warning of further falls in the stock market as investors seek save havens in Treasurys and precious metals.

10-Year Treasury Yields

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DAX breaks support

Dow Jones Germany Index broke support at 210/205 Monday, warning of another sharp fall as the ECB ramps up bond purchases and German participation in the bailout program is challenged in their High Court. Plunging 13-week Twiggs Money Flow indicates strong selling pressure. Target for the fall is the 2009 low of 150*.

DJ Germany Index

* Target calculation: 200 – ( 250 – 200 ) = 150

The DAX Index similarly broke support at 5500, offering a target of 4500*.

DAX Index

* Target calculation: 5500 – ( 6500 – 5500 ) = 4500

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European rally meets resistance

The FTSE 100 index is meeting selling pressure in its rally to test resistance at 5600, evidenced by tall shadows on the last two candles. Reversal of 13-week Twiggs Money Flow below zero would strengthen the signal. Failure of support at 4800 would offer a target of 4000*.

FTSE 100 Index

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

The DAX Index also displays tall shadows on the last two weekly candles. The rally to test 6400 is particularly weak, with decline of 13-week Twiggs Money Flow below zero warning of strong selling pressure. Reversal below 5400 would offer a target of 4400*.

DAX Index

* Target calculation: 5400 – ( 6400 – 5400 ) = 4400

The CAC-40 displays similar selling pressure. Breakout below 2900 would offer a target of 2500*.

CAC-40 Index

* Target calculation: 2900 – ( 3300 – 2900 ) = 2500

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TSX60

TSX 60 Index is testing resistance at 725/735. 13-Week Twiggs Money Flow oscillating around zero indicates hesitancy. Resistance is likely to hold and reversal below the week’s low at 700 would warn of another test of support at 650/660. In the medium term, failure of support would offer a target of 580*.

TSX 60 Index

* Target calculation: 650 – ( 720 – 650 ) = 580

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Dow runs out of buyers

Dow Jones Industrial Average failed to reach resistance at 11900/12000. Low volumes indicate a lack of interest from buyers rather than large numbers of sellers. Expect a test of support at 10600 to 10800. A strong surge in volume would indicate buying support, but failure is more likely and would offer a target of 9600*.

Dow Jones Industrial Average

* Target calculation: 10800 – ( 12000 – 10800 ) = 9600

The S&P 500 Index is similarly headed for a test of support at 1100/1120. 21-Day Twiggs Money Flow peaking below the zero line [bear] warns of strong selling pressure. Failure of support would offer a target of 1000*.

S&P500 Index

* Target calculation: 1120 – ( 1260 – 1120 ) = 980

The Nasdaq 100 Index fared better over the last few weeks, but a failed breakout above 2200 warns of another test of 2000. 13-Week Twiggs Money Flow reversal below zero would further strengthen the bear signal.

Nasdaq 100 Index

* Target calculation: 2000 – ( 2200 – 2000 ) = 1800

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Traders Don’t Care About Long-Term Problems, But You Should | Chris Ciovacco | Safehaven.com

We believe the psyche of investors is on the verge of reaching a tipping point, which could cause a very rapid decline in asset prices. It is next to impossible to know if and when they will reach for the sell button in unison, but the risk for such an event is elevated and must be considered in all portfolio management decisions. Stocks dropped 34% in twelve trading sessions in 1987. High volatility occurred before that drop, indicating an increased willingness to run for the exits. If you have not noticed, the markets have been volatile recently. An “Oh, my God” type event is difficult to predict, but the conditions are in place to make for an interesting next few months.

via Traders Don’t Care About Long-Term Problems, But You Should | Chris Ciovacco | Safehaven.com.

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On High Correlations – Seeking Alpha

If the time horizons of investors are predominantly long, correlations on assets should be low in the short-run, because investors don’t make decisions to trade off of short-term macro factors. But when a large part of the investor base is skittish and is always running to or from the latest bit/byte/bite of data – that leads to high correlations.

ETFs aren’t necessary for high correlations, but they seem to help the process by creating easy ways for people to implement decisions that are a simple idea. “I want financials, I don’t want energy, buy the long bond, sell gold.”

Thus high short-term correlations indicate a momentum mindset in the investor base.

via On High Correlations – Seeking Alpha.

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Reminder: we’re in a bear market

Don’t be fooled by current month-end froth in the markets — into thinking that the bear market is over or that the early August plunge was a false signal. The S&P 500 Index has made little headway after completing a double bottom at 1200 despite average volumes indicating the absence of strong selling. 63-Day Momentum peaking below the zero line indicates a primary down-trend. Expect the bear rally to test resistance at 1250/1260 before a retreat to 1100. Breach of 1100 would find support at the 2010 low of 1000, but the calculated target is even lower*.

S&P500 Index

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

The Nasdaq 100 performed better, clearing 2200 to complete a double bottom with a target of 2350*. Bullish divergence on 13-week Twiggs Money Flow indicates buying pressure. But this is a bear rally in the middle of a bear market, and further falls on the Dow/S&P 500 would drag the Nasdaq lower.

Nasdaq100 Index

* Target calculation: 2200 + ( 2200 – 2050 ) = 2350

Fedex and UPS remain in a primary down-trend, indicating that economic activity levels remain poor.

Fedex and UPS

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HEARD ON THE STREET: Life in the New Macro World – WSJ.com

Macro issues such as the solvency of European countries and fears of a global economic slowdown have overshadowed fundamental differences between companies. The consequence is that stocks are moving in tandem, indicating a high degree of correlation.

Based on one-month trailing movements, S&P 500-index stocks have a correlation of 80%, even higher than the 73% peak reached during the crisis in late 2008, says Ana Avramovic of Credit Suisse.

via HEARD ON THE STREET: Life in the New Macro World – WSJ.com.

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