Category: Stock Markets

Analysis of major stock markets around the world.

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Why Australian manufacturing is dying

The following graphs from the Productivity Commission Preliminary Report on Australia’s Automotive
Manufacturing Industry give an insight into the problems facing Australian manufacturers.

The first graph compares average hourly labor costs for auto-manufacturers in different countries. Australia is second-highest (behind Germany), in terms of labor cost per hour, and roughly 7 times as high as China and India — ignoring local ABS figures for which there are no comparatives.

Hourly Labor Costs

The second graph shows how the rising Australian Dollar has impacted on local auto-manufacturing.

Australian motor vehicle production compared to the trade weighted exchange rate

The local market is not big enough to sustain a competitive auto-manufacturing industry, but that argument does not seem to have hindered five of the top seven global manufacturers — Volkswagen, Hyundai, Toyota, Nissan and Honda — whose local markets are of a similar scale to our own. The difference is that they have adopted a global outlook rather than focusing on their own domestic market as Australia has done.

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Aussie Dollar leads ASX lower

The falling Aussie Dollar continues to reflect local market weakness. Breach of primary support at $0.89 against the greenback would indicate a primary decline, with a long-term target of $0.81*. The recent Twiggs Momentum peak below zero also suggests a primary down-trend. Respect of support, and recovery above the descending (orange) trendline, is unlikely but would indicate another rally.

Aussie Dollar

* Target calculation: 0.89 – ( 0.97 – 0.89 ) = 0.81

The ASX 200 correction halted above medium-term support between 4900 and 5000, but there are no signs yet of a reversal. Bearish divergence on 13-week Twiggs Money Flow continues to warn of selling pressure. Breach of support at 4900 would warn of a test of primary support at 4650. Respect of support (4900) and Twiggs Money Flow respect of the zero line are both unlikely, but would suggest continuation of the primary up-trend.

ASX 200

Low values on the ASX 200 VIX continue to reflect low market risk.

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Japan & India hesitate after breakout

Japan’s Nikkei 225 is testing its new support level around 15000. Declining 13-week Twiggs Money Flow warns of long-term selling pressure. Respect of support would confirm a primary advance, with a long-term target of 17500*. But breach of the rising trendline is as likely, and would warn of a correction to the base of the formation at 12500/13000.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 12500 ) = 17500

India’s Sensex made a false break through resistance at 21200, warning of selling pressure. Bearish divergence on 13-week Twiggs Money Flow also indicates medium-term selling pressure. Retreat below support at 20200 would warn of a test of primary support at 18000. Recovery above 21200 is unlikely at present, but would confirm a primary advance to 24000*.

Sensex

* Target calculation: 21000 + ( 21000 – 18000 ) = 24000

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China and Hong Kong retreat

China’s Shanghai Composite retreated from resistance at 2260 on the daily chart, breach of short-term support at 2180 signaling a correction. Reversal of 21-Day Twiggs Money Flow holding below zero would signal selling pressure, while respect of the zero line would reflect a healthy (primary) up-trend.

Shanghai Composite Index

Hong Kong’s Hang Seng Index retreated to 23000 on the weekly chart. Penetration of the rising trendline suggests a correction to primary support at 22500. Recovery above 23500 is unlikely, but would signal an advance to 24500*.

Hang Seng Index

* Target calculation: 23500 + ( 23500 – 22500 ) = 24500

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Footsie lags behind

The FTSE 100 continues to display selling pressure, with a large bearish divergence on 13-week Twiggs Money Flow. Failure of primary support at 6400, and breach of the rising trendline, would warn of reversal to a primary down-trend. Follow-through below 6300 would confirm. Recovery above the descending trendline is less likely, but would signal continuation of the primary up-trend.

FTSE 100

* Target calculation: 6700 + ( 6700 – 6400 ) = 7000

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Euro and DAX lead recovery

European recovery is highlighted by performance of the euro. Breakout above $1.38 would confirm a primary up-trend, with an immediate target of $1.43*. 13-Week Twiggs Momentum troughs above zero indicate a healthy primary up-trend. Reversal below $1.37 is now unlikely, but would warn of another test of primary support at $1.33.

Euro

* Target calculation: 1.38 + ( 1.38 – 1.33 ) = 1.43

Germany’s DAX found support at 9000. Breakout above 9400 would signal an advance to 9800*. Reversal below 9000 is as likely, however, and would test medium-term support at 8500. Short retracements suggest strong buying pressure — also indicated by 13-week Twiggs Money Flow oscillating high above zero.

DAX

* Target calculation: 9400 + ( 9400 – 9000 ) = 9800

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Canada: TSX 60 finds support

Canada’s TSX 60 found support at 750. Recovery above 780 would signal an advance to 810*. Another 13-week Twiggs Money Flow trough above zero would confirm strong buying pressure. Reversal below 740 remains unlikely, but would warn of a test of primary support at 675/680.

TSX 60

* Target calculation: 780 + ( 780 – 750 ) = 810

Low TSX 60 VIX readings suggest a bull market.

TSX 60 VIX

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S&P 500 correction over?

The S&P 500 found support at 1775, but declining 21-day Twiggs Money Flow warns the correction is not yet over. Breach of 1775 would indicate a test of the ascending trendline and medium-term support at 1730. Recovery above 1810 is less likely, but would suggest an accelerating up-trend — with sharper gains and shorter retracements.

S&P 500

* Target calculation: 1725 + ( 1725 – 1650 ) = 1800

CBOE Volatility Index (VIX) readings below 20 are indicative of a bull market.

VIX Index

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S&P 500 threatens correction

The S&P 500 is again testing support at 1780; breakout would warn of a correction. Initial support is at 1710, with primary support and the long-term trendline at 1630. Bearish divergence on 13-week Twiggs Money Flow indicates medium-term selling pressure. Recovery above 1810 is now unlikely.

S&P 500

* Target calculation: 1725 + ( 1725 – 1650 ) = 1800

The ASX 200 is already undergoing a correction after breaking support at 5300. Failure of support between 4900 and 5000 would warn of a test of primary support at 4650. Bearish divergence on 13-week Twiggs Money Flow indicates far more severe selling pressure. A fall below zero would suggest reversal to a primary down-trend, but only breach of 4650 would confirm.

ASX 200

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European stocks retreat

Dow Jones Euro Stoxx 50 retreated below the first line of support at 3000, warning of a correction to the rising trendline. 13-Week Twiggs Momentum above zero continues to suggest a primary up-trend. A trough above zero would strengthen the signal. Recovery above 3100 is now unlikely, but would signal an advance to 3500*.

Euro Stoxx 50

* Target calculation: 3000 + ( 3000 – 2500 ) = 3500

Germany’s DAX continues a primary advance with a long-term target of 10000*. Rising 13-week Twiggs Money Flow indicates strong buying pressure. Reversal below 9000, however, would warn of a correction.

DAX

* Target calculation: 7500 + ( 7500 – 5000 ) = 10000

France’s CAC-40 also displays long-term buying pressure, with rising 13-week Twiggs Money Flow, but retreat below the new support level at 4200 warns of a correction. Recovery above 4200 is now unlikely, but would indicate an advance to 4400*.

CAC-40

* Target calculation: 4000 + ( 4000 – 3600 ) = 4400

Bearish divergence on the FTSE 100, 13-week Twiggs Money Flow, indicates selling pressure and breach of support at 6600 signals a correction. Follow-through below the lower border of the flag formation (6500) would confirm. Failure of primary support at 6400 and breach of the rising trendline would warn of reversal to a primary down-trend.

FTSE 100

* Target calculation: 6700 + ( 6700 – 6400 ) = 7000

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