Analysis of major stock markets around the world.
India’s Sensex continues to meet resistance at 29000. Twiggs Money Flow now displays a mild bearish divergence. Breakout above 29000 would find resistance at the 2015 high of 30000 which may prove stubborn. Reversal below 28000 is less likely but would warn of another test of primary support at 26000.
Dow Jones Euro Stoxx 50 represents the 50 largest blue chip stocks (Volkswagen, Bayer, Allianz, L’Oreal, Phillips, Unilever, etc.) in the Eurozone, in terms of free-float market capitalization. Breakout above resistance at 3330 signals an advance to 3500*.
* Target: 3300 + ( 3300 – 3100 ) = 3500
The FTSE 100 is testing support at its former resistance level of 7350. Rising troughs on Twiggs Money Flow indicate strong buying pressure. Respect of support is likely and would confirm an advance to 7500*.
* Target: 7100 + ( 7100 – 6700 ) = 7500
Long-term target is 8000: 7000 + (7000 – 6000).
The ASX 200 reflects a tussle between the resources and banking sectors which are pulling in opposite directions. The ASX 300 Metals & Mining Index is falling, with declining Twiggs Money Flow warning of long-term selling pressure.
The banking sector, however, is rallying. The ASX 300 Banks index recovered above 9000, signaling another advance, while rising Twiggs Money Flow indicates long-term buying pressure.
The banking sector is larger, but more vulnerable to shocks from other parts of the economy, so this is an even match.
The ASX 200 is again testing resistance at 5800. The ascending triangle (5600 to 5800) and rising Twiggs Money Flow are both bullish signs. Breakout above 5800 would signal a test of 6000*.
* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000
Banking performance tends to lag other sectors, however. It takes time for consequences of a slow-down in other parts of the economy to impact on banks, through slower growth and higher bad debt provisions. I expect stubborn (ASX 200) resistance at 6000.
Dow Jones Industrial Average is testing resistance at 21000. Another narrow consolidation, as in December-January, would confirm strong buying pressure already signaled by rising Twiggs Money Flow troughs above zero.
We are witnessing stage III of a bull market. While this is the final leg, it could last several weeks or several years. My guess is that it will last until the Fed is forced to hike interest rates in 2018, to cool inflation.
From Barry Ritholz:
CEO pay is rigged.
If that sounds more like a late-night presidential tweet than a fact, let’s consider the evidence.
The compensation packages of the chief executive officers of America have been rising faster than just about any rational metric upon which they are supposedly based. “CEO pay grew an astounding 943% over the past 37 years,” according to a recent Economic Policy Institute analysis. EPI further observes this was a far faster growth rate than “the cost of living, the productivity of the economy, and the stock market.”
CEO compensation isn’t the pay for performance its advocates claim. Instead, it is unmoored from any rational basis.
We may blame corporate boards for allowing this abuse to happen, a breach of their duty of stewardship, but why isn’t more being done about it?
Those in the best position to press for changes in executive pay are the giant fund companies like BlackRock Inc. and Vanguard Group Inc….. Vanguard Chairman and CEO Bill McNabb said in an interview last fall that rather than only rely on proxy votes, the firm has been pressuring companies behind the scenes to pare back outrageous packages. That approach makes sense, given that the indexing giant, for the most part, can’t simply sell the stock of uncooperative companies without uncoupling their funds from the indexes they are trying to track.
It looks like passive investing is part of the problem. Membership of an index ensures that a stock will be supported by passive, index investors. Plus boards can use stock buy-backs to support their own stock price, giving them partial control over the major performance metric on which they are rewarded.
Only active fund managers will dig deeper and rate management on their ability to create long-term value. Unfortunately their influence over stock prices is shrinking.
The Australian Resources sector has been on a tear over the last 12 months, something I was slow to pick up on. China’s PBOC stepped in to boost a slowing economy, sending property prices surging. But now the central bank is tightening monetary policy and housing price growth is slowing.
The ASX 300 Metals & Mining Index is losing momentum, falling below its long-term trendline. Declining Twiggs Money Flow, with peaks near zero, warns of selling pressure.
The fall has slowed advance of the ASX 200. Resistance at 5800 is proving stubborn. Breach of support at 5600 would complete a double top reversal, warning of a primary down-trend. But declining Twiggs Money Flow indicates no more than medium-term selling pressure at present, recovery above 5800 is more likely and would signal a test of 6000*.
* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000
Dow Jones Industrial Average closed the week above 21000 for the first time. Twelve months ago the index was at 17000, an increase of 23.5 percent. Shallow retracements since then signal buying pressure, highlighted by Twiggs Money Flow troughs above zero. The latest trough, higher than zero, reflects growing enthusiasm from investors.
Prices are rising faster than earnings in expectation of future growth. Clearly the Dow is in Phase III of a Bull Market. As I pointed out in December, this could last for several years.
Dow Jones Industrial Average continues to climb, heading for a target of 21000. Rising troughs on Twiggs Money Flow signal strong buying pressure.
The S&P 500 follows a similar path.
With the CBOE Volatility Index (VIX) close to historic lows around 10 percent.
However, at least one investment manager, Bob Doll, is growing more cautious:
“…we think the easy gains for equities are in the rearview mirror and we are growing less positive toward the stock market. We do not believe the current bull market has ended, but the pace and magnitude of the gains we have seen over the past year are unlikely to persist.”
Bob Doll’s view is reinforced by recent developments with the S&P 500 Forward Price-Earnings Ratio. I remarked at the beginning of February that the Forward P/E had dropped below 20, signaling a time to invest.
Actual earnings results, however, have come in below earlier estimates — shown by the difference between the first of the purple (latest estimate) and orange bars (04Feb2017) on the chart below.
In the mean time the S&P 500 index has continued to climb, driving the Forward P/E up towards 20.
This is not yet cause for alarm. We are only one month away from the end of the quarter, when Forward P/E is again expected to dip as the next quarter’s earnings (Q1 2018) are taken into account.
But there are two events that would be cause for concern:
Either of the above could cause Forward P/E to rise above 20, reflecting over-priced stocks.
Be fearful when others are greedy and greedy only when others are fearful.
~ Warren Buffett
The ASX 200 broke down below its recent consolidation, signaling another test of support at 5600. There is no indication on Twiggs Money Flow of unusual selling pressure and at present I expect support to hold.
* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000
China’s Shanghai Composite Index is approaching resistance at 3300 after respecting its new support level at 3100. Twiggs Money Flow troughs above zero indicate long-term buying pressure. Breakout would provide further confirmation of the primary up-trend.
* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400
The rising market is primarily a result of central bank stimulus so investors need to consider the result if this is withdrawn. Rising producer prices warn that underlying inflation is growing. If this continues the PBOC will be forced to retreat.
Hong Kong’s Hang Seng Index is also testing resistance, at 24000. A Twiggs Money Flow trough that respects zero would signal long-term buying pressure but that looks uncertain at present.
