Analysis of major stock markets around the world.
Spot gold broke support at $1200/ounce, warning of a primary down-trend to test $1000*. Follow-through below $1180 would confirm. 13-Week Twiggs Momentum below zero already signals a primary down-trend.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
Spot silver has already broken primary support and gold is expected to follow.
We are at the September quarter-end and stock weakness is likely to continue into October.
From the Wall Street Journal:
U.S. job growth rebounded in September and the jobless rate fell below 6% for the first time since mid-2008, suggesting the labor market is improving faster than previously thought. Nonfarm payrolls grew a seasonally adjusted 248,000 last month, the fastest pace since June, the Labor Department said Friday.
The S&P 500 broke downwards from its broadening wedge formation this week, warning of a correction to 1900. But Thursday’s long tail and Friday’s rally indicate buying support below 1950. Another test of 2000 is likely. Respect of resistance would warn of further weakness in October, while breakout would suggest a fresh advance; follow-through above 2020 would confirm.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains below 20, typical of a bull market.
Dow Jones Euro Stoxx 50 found support at 3100, but this is unlikely to hold. Expect another test of primary support at 3000. Breach would signal a down-trend. Fall of 13-week Twiggs Money Flow below zero would strengthen the bear signal.
* Target calculation: 3000 – ( 3300 – 3000 ) = 2700
Dow Jones Asia Index is headed for a test of 2800 on the weekly chart despite continued bullishness on the Shanghai Composite, reflecting strength in the US Dollar. Penetration of the rising trendline would strengthen the bear signal. Reversal of 13-week Twiggs Momentum below zero also signals a primary down-trend.
The ASX 200 found support at 5250. Recovery above 5350 and the descending trendline would suggest that the correction is over. But respect of resistance remains as likely and breach of 5250 would warn of a test of 5000/5050. Recovery of 21-day Twiggs Money Flow above zero would indicate short-term buying pressure.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
We are at the September quarter-end and stock weakness is likely to continue into October.
From the Wall Street Journal:
U.S. job growth rebounded in September and the jobless rate fell below 6% for the first time since mid-2008, suggesting the labor market is improving faster than previously thought. Nonfarm payrolls grew a seasonally adjusted 248,000 last month, the fastest pace since June, the Labor Department said Friday.
The S&P 500 broke downwards from its broadening wedge formation this week, warning of a correction to 1900. But Thursday’s long tail and Friday’s rally indicate buying support below 1950. Another test of 2000 is likely. Respect of resistance would warn of further weakness in October, while breakout would suggest a fresh advance; follow-through above 2020 would confirm.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains below 20, typical of a bull market.
Dow Jones Euro Stoxx 50 found support at 3100, but this is unlikely to hold. Expect another test of primary support at 3000. Breach would signal a down-trend. Fall of 13-week Twiggs Money Flow below zero would strengthen the bear signal.
* Target calculation: 3000 – ( 3300 – 3000 ) = 2700
Dow Jones Asia Index is headed for a test of 2800 on the weekly chart despite continued bullishness on the Shanghai Composite, reflecting strength in the US Dollar. Penetration of the rising trendline would strengthen the bear signal. Reversal of 13-week Twiggs Momentum below zero also signals a primary down-trend.
The ASX 200 found support at 5250. Recovery above 5350 and the descending trendline would suggest that the correction is over. But respect of resistance remains as likely and breach of 5250 would warn of a test of 5000/5050. Recovery of 21-day Twiggs Money Flow above zero would indicate short-term buying pressure.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
The ASX 200 found resistance at 5350. Respect of the zero line (from below) by 21-day Twiggs Money Flow warns of continued selling pressure. Failure of support at 5250 would warn of a test of primary support at 5000/5050. Recovery above 5350 is less likely, but would suggest another rally.
* Target calculation: 5350 – ( 5700 – 5350 ) = 5000
The ASX 200 VIX is rising, but remains at levels typical of a bull market.
The S&P 500 broke through the lower border of the broadening wedge and the secondary trendline at 1965, indicating a correction. Expect support at 1900. Decline of 21-day Twiggs Money Flow below zero would strengthen the signal, while recovery above 25% (September high) would suggest that buyers are back in control.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) is close to 17%, but the low level continues to suggest a bull market.
The CCP is in a cleft stick over the protests in Hong Kong. Either they escalate and clear protestors with a massive show of force — which risks further escalation — or they wait patiently and let the protest run its course. Their problem is that there are more than 800 million Chinese citizens watching, who will take this as a precedent for future demonstrations in China. The shadow of Tiananmen Square will be replaced by the outcome of the current protests, whatever that is.
Perhaps most incredible photo of #HongKong you will ever see: protests last night via @hkdemonow pic.twitter.com/hSuYMXHTCF
— Jon Williams (@WilliamsJon) October 1, 2014
Hong Kong’s Hang Seng Index broke support at 24000, signaling a correction to 21000/22000. Reversal of 13-week Twiggs Money Flow below zero would warn of a bear market. Breach of support at 21000 would indicate a primary down-trend.
China’s Shanghai Composite Index, however, broke resistance at 2340/2350, indicating an advance to 2440/2450. Rising 13-week Twiggs Money Flow continues to indicate medium-term buying pressure. I would advocate caution, given the situation in Hong Kong and a negative outlook for the economy.
* Target calculation: 2250 + ( 2250 – 2000 ) = 2500
India’s Sensex is testing support at 26000. Bearish divergence on 13-week Twiggs Money Flow continues to warn of long-term selling pressure, but another trough above zero would suggest that buyers are regaining control. Failure of support would signal a correction to the primary trendline — around 25000 — while respect would indicate an advance to 28000*.
* Target calculation: 27000 + ( 27000 – 26000 ) = 28000
Japan’s Nikkei 225 index retraced to test support at 16000, but respect of this level would be a bullish sign, suggesting a breakout above its 2013 high of 16300 with a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of a correction. Another 13-week Twiggs Money Flow would signal long-term buying pressure.
* Target calculation: 16000 + ( 16000 – 14000 ) = 18000
Germany’s DAX is retracing for another test of support at 9300 and 13-week Twiggs Money Flow retreat below zero, after a bearish divergence, warns of long-term selling pressure. Failure of support would warn of a primary down-trend, while breach of primary support at 9000/8900 would confirm. Respect of support is unlikely, but recovery above 9800 would suggest another advance.
* Target calculation: 9000 – ( 10000 – 9000 ) = 8000
The Footsie is also likely to test primary support at 6400/6500. Divergence on 13-week Twiggs Money Flow, however, is nowhere near as bearish as the DAX and stronger support is likely.
* Target calculation: 6500 – ( 6900 – 6500 ) = 6100
The Australian Dollar found support at $0.8650/$0.8700 and is likely to retrace to test the new resistance level at $0.8850/$0.8900. Declining 13-week Twiggs Momentum (below zero) signals a primary down-trend. Respect of resistance is likely and breach of primary support ($0.8650) would offer a target of $0.80*.
* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80
The ASX 200 is also retracing and likely to test resistance around 5350. Peaks below zero on 13-week Twiggs Money Flow warn of long-term selling pressure. Respect of resistance is likely and would warn of a test of 4900/5000*.
* Target calculation: 5350 – ( 5700 – 5350 ) = 5000
The ASX 200 VIX is rising, but remains at levels typical of a bull market.
We are now at the September quarter-end, normally a volatile time for stocks. Expect selling pressure to increase over the next few weeks as investment managers sell off poor-performing stocks. Increased cash balances then enable them to take advantage of new opportunities as they present themselves. If the fundamental under-pinning of the market is sound, the market is likely to undergo a minor dip before resuming its advance. If not, and there are serious flaws, the sell-off could turn into a rout — as in 1987 and 2007.
At present the market appears sound, with none of our market indicators flagging elevated risk, and the bull market is likely to continue.
Bears cite the potential for an increase in US interest rates as a major threat to the US economy. The track record for the last 15 years suggests otherwise. The graph below compares percentage change in 10-year Treasury yields to the Wilshire 5000 Total Market Index (divided by 20 for purposes of comparison). The two tend to rise and fall in sync, with a 20% to 40% rise in the index accompanying a 1% increase in yields.
The Fed tends to be conservative about raising interest rates (“doves” outnumber “hawks”) and is unlikely to raise rates until there is solid evidence of a recovery. So a rise in interest rates is more likely to be followed by a surge in stocks than a fall.
The S&P 500 found significant support at 1965, the lower border of the broadening wedge. Monday’s long tail flags (short-term) buying pressure. Follow-through above 1990 would suggest a rally to test the upper border. Breach of 1965, however would indicate another correction. Decline of 21-day Twiggs Money Flow below zero would confirm, while recovery above its September high would suggest that buyers are back in control.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) is rising, but the low level continues to suggest a bull market.
Dow Jones Industrial Average found support at 16950 on the weekly chart. Long tails again flag buying pressure. Recovery above 17150 would suggest another advance, while follow-through above 17350 would confirm. Breach of support at 16950 is unlikely, but would warn of a correction. 13-Week Twiggs Money Flow reflects some hesitancy, but the long-term picture is bullish.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
Australian stocks have taken a bit of a beating over the last few weeks, including a few of the momentum stocks in our portfolio. Risk of a bear market remains low, but a falling Aussie Dollar has prompted international investors to scale back exposure to Australian equities.
This tends to become self-reinforcing as falling stock prices then prompt further sell-offs. And repatriation causes further weakness in the Aussie Dollar. The down-trend is likely to continue if support at $0.8650/$0.8700 is breached.
Investors who split their portfolio between the S&P 500 and the ASX 200 have been cushioned from the fall, with their US portfolio showing strong appreciation in Australian Dollar terms.