Analysis of major stock markets around the world.
The Footsie (FTSE 100) respected support at 6700 and a strong weekly candlestick suggests another test of the all-time high at 7100. A Twiggs Money Flow trough above zero would confirm long-term buying pressure. Breach of 6700 is now unlikely but would warn of a correction to 6500.
India’s Sensex rallied off support at 26000, but Twiggs Money Flow still warns of selling pressure. Breach of 26000 would indicate a test of 25000.
Germany’s DAX broke out of its narrow line (or consolidation) between 10200 and 10800, signaling a primary advance with a target of 11500* and confirming a bull market.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
Some good discussion on our forum regarding current high stock valuations, based more on hopes than on earnings.
This chart of Price-Earnings ratios highlights the problem. PEs for both the MSCI World Index (ex-Australia) and the ASX 200 are close to historic highs (after the Dotcom bubble).
Strong earnings growth would soon fix this but there is little sign of that at present.
The ASX 200 rally stalled at 5500. Declining 21-day Twiggs Money Flow indicates rising selling pressure. Breakout above 5500 would complete a bear trap, indicating a primary advance to 5800*. But reversal below 5400 would signal another test of primary support at 5150.
Germany’s DAX is retracing to test support at 10200. The DAX has formed a narrow line (or consolidation) between 10200 and 10800 over the last quarter. Declining Twiggs Money Flow is typical during a consolidation and does not have much significance unless it crosses below zero. Breakout will signal future direction, either an advance to 11500* or a test of support at 9000.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
The Footsie (FTSE 100) is again testing support at 6700. Declining Twiggs Money Flow warns of selling pressure. Breach of 6700 is likely and would warn of a correction to 6500.
Having backed off some other campaign pledges, it’s unclear if Trump will end up slapping punitive tariffs on China – and Beijing has signalled some optimism he will be more pragmatic in office. Still, the message from China is that any move to tax Chinese imports would bring retaliation. The US economy would take a hit and America would damage its longstanding ties with Asia.
“China wouldn’t like to see that happen,” Fu Ying, who chairs the foreign affairs committee of the legislature and was a vice-foreign minister until 2013, said of the US imposing punitive tariffs. “But if so happens, it won’t be one-way traffic,” she said last week in Beijing.
That’s where I think the former vice-foreign minister is wrong. China has rigged the game so that trade with the US is largely one-way traffic.
Container imports and exports at the Port of Los Angeles (FY 2016) highlight the problem. More than 57% of outbound containers are empty. Container shipping represents mainly manufactured goods, rather than bulk imports or exports, and the dearth of manufactured exports reflects the trade imbalance with Asia. Even the container statistic understates the problem as many outbound containers contained scrap metal and paper for processing in Asia, rather than manufactured goods.
Source: China turns to ‘The Art of War’ as Donald Trump signals battle on trade
India’s Sensex found support at 26000, this week’s long tail suggesting buying pressure. Declining Twiggs Money Flow still signals selling pressure, however, and breach of 26000 would indicate a test of 25000.
Support levels are fairly weak all the way down to 23000 because of the absence of strong corrections during the March to September 2016 advance.
Japan’s Nikkei 225 Index broke resistance at 17500 while rising Money Flow indicates buying pressure. Target for the rally is the November 2015 high of 20000*.
* Target medium-term: 17500 + ( 17500 – 15000 ) = 20000
Shanghai Composite Index followed through after a brief consolidation at 3200, offering a target of 3400*. Expect retracement to test the new support level at 3100 but rising Money Flow suggests respect is likely.
* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400
