Category: Stock Markets

Analysis of major stock markets around the world.

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Market turbulence

A Coincident Economic Activity Index above 0.2 indicates the US recovery is on track. Produced by the Philadelphia Fed, the index includes four indicators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries. Bellwether stock Fedex also suggests rising economic activity.

Coincident Economic Activity Index

But contraction of the ECB balance sheet by € 1 Trillion over the last two years has pitched Europe back into recession.

Weakness in Europe and Asia has the capacity to retard performance of US stocks despite the domestic recovery.

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Trouble in the East

Expect a continued arm wrestle between Russia and the West over influence in the Ukraine. Russians obviously view their shrinking sphere of influence as a threat to future security. But Vladimir Putin’s actions in Georgia, Moldova, Crimea and the Ukraine — straight from the KGB playbook — are the biggest threat to their security.

A war-weary US and pacifist Europe may be slow to react, but their capacity when provoked to subdue any threat from the East, through their combined economic might, is immense. One should not be fooled by Putin’s macho posturing. He is playing a very weak hand.

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S&P 500 broadening wedge

  • We are at the September quarter-end and can expect stock weakness to continue into October
  • The Dollar is rising
  • Gold and crude oil are falling
  • European stocks are bearish
  • Asian stocks are bearish despite China showing strength
  • US stocks reflect a bull market

Dow Jones Europe Index is testing primary support at 320. Breach would signal a down-trend. Follow-through below 315 would confirm. Penetration of the rising trendline and 13-week Twiggs Momentum peak below zero both strengthen the bear signal.

Dow Jones Europe Index

* Target calculation: 320 – ( 340 – 320 ) = 300

Dow Jones Asia Index broke primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Expect a test of support at 3000 (at the rising trendline). Reversal of 13-week Twiggs Momentum below zero would further strengthen the bear signal. Follow-through below 3000 would confirm a primary down-trend.

Dow Jones Asia Index

* Target calculation: 3100 + ( 3100 – 2800 ) = 3400

Shanghai Composite Index, however, continues to test resistance at 2350. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.

Shanghai Composite Index

Bear in mind that Dow Asia and Dow Europe are priced in USD and reflect strength in the US Dollar as well as weakness in local markets — though the two are closely connected.

The S&P 500 is consolidating around the 2000 level in a broadening wedge formation. Do not be surprised if the index rallies early next week, to test medium-term resistance at 2020. Fund managers are normally willing to support the market at quarter-end and lock in quarterly performance bonuses. But this is likely to be followed by weakness in October as they sell off non-performing stocks and increase cash holdings until new opportunities present themselves. Breakout below the broadening wedge — and penetration of both support at 1950 and the (secondary) rising trendline — would warn of a correction. A large volume spike from triple-witching hour on September 19th, however, has exaggerated weakness on Twiggs Money Flow. Breakout above 2020 would signal a fresh advance.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.

S&P 500 VIX

The ASX 200 is testing support at 5300/5350. Penetration of the rising trendline warns of a correction to 5000. Declining 13-week Twiggs Money Flow, below zero, after a long-term bearish divergence, also signals weakness. Breach of 5300 would confirm a test of 5000. Recovery above 5550 is unlikely, but would suggest another test of 5650.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

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Australian investors

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.

AUDUSD

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.

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S&P 500 broadening wedge

  • We are at the September quarter-end and can expect stock weakness to continue into October
  • The Dollar is rising
  • Gold and crude oil are falling
  • European stocks are bearish
  • Asian stocks are bearish despite China showing strength
  • US stocks reflect a bull market

Dow Jones Europe Index is testing primary support at 320. Breach would signal a down-trend. Follow-through below 315 would confirm. Penetration of the rising trendline and 13-week Twiggs Momentum peak below zero both strengthen the bear signal.

Dow Jones Europe Index

* Target calculation: 320 – ( 340 – 320 ) = 300

Dow Jones Asia Index broke primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Expect a test of support at 3000 (at the rising trendline). Reversal of 13-week Twiggs Momentum below zero would further strengthen the bear signal. Follow-through below 3000 would confirm a primary down-trend.

Dow Jones Asia Index

* Target calculation: 3100 + ( 3100 – 2800 ) = 3400

Shanghai Composite Index, however, continues to test resistance at 2350. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.

Shanghai Composite Index

Bear in mind that Dow Asia and Dow Europe are priced in USD and reflect strength in the US Dollar as well as weakness in local markets — though the two are closely connected.

The S&P 500 is consolidating around the 2000 level in a broadening wedge formation. Do not be surprised if the index rallies early next week, to test medium-term resistance at 2020. Fund managers are normally willing to support the market at quarter-end and lock in quarterly performance bonuses. But this is likely to be followed by weakness in October as they sell off non-performing stocks and increase cash holdings until new opportunities present themselves. Breakout below the broadening wedge — and penetration of both support at 1950 and the (secondary) rising trendline — would warn of a correction. A large volume spike from triple-witching hour on September 19th, however, has exaggerated weakness on Twiggs Money Flow. Breakout above 2020 would signal a fresh advance.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.

S&P 500 VIX

The ASX 200 is testing support at 5300/5350. Penetration of the rising trendline warns of a correction to 5000. Declining 13-week Twiggs Money Flow, below zero, after a long-term bearish divergence, also signals weakness. Breach of 5300 would confirm a test of 5000. Recovery above 5550 is unlikely, but would suggest another test of 5650.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

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Wall Street goes “Putin” on IEX

From Michael Lewis:

One of our financial sector’s most striking traits is how fiercely it resists useful, disruptive entrepreneurship that routinely upends other sectors of our economy. People in finance are paid a lot of money to disrupt every sector of our economy. But when it comes to their own sector, they are deeply wary of market-based change. And they have the resources to prevent it from happening. To take one example: in any other industry, IEX, the new stock market created to eliminate a lot of unnecessary financial intermediation and the subject of my last book would have put a lot of existing players out of business. And it still might. The people who run IEX have very obviously found a way to make the U.S. stock market — and other automated financial markets — more efficient and, in the bargain, reduce, by some vast amount, the take of the financial sector. Because of this they now face what must be one of the best organized and funded smear campaigns outside of U.S. politics: underhanded attacks from anonymous Internet trolls, congressional hearings staged to obfuscate problems in the market, by senators who take money from the obfuscators; op-ed articles from prominent former regulators, now employed by the Wall Street machine, that spread outright lies about the upstarts; error-ridden pieces by prominent journalists too stupid or too lazy or too compromised to do anything but echo what they are told by the very people who make a fortune off the inefficiencies the entrepreneurs seek to eliminate….

Read more at Occupational Hazards of Working on Wall Street | Bloomberg View.

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Aussie under the pump but ASX finds support

The Aussie Dollar is now testing support at $0.89 after negative projections from Nouriel Roubini’s team. Reversal of 13-week Twiggs Momentum below zero warns of a primary down-trend, but expect further support at $0.8650/$0.8700. Breach would confirm a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 is testing support at 5300/5350. Long tails on the last two candles suggest short/medium-term buying pressure, but 13-week Twiggs Money Flow below zero warns of long-term selling pressure. Recovery above 5450 would suggest another rally, while breach of 5300 would warn of a fall to 4900/5000*.

ASX 200

* Target calculation: 5350 – ( 5700 – 5350 ) = 5000

The ASX 200 VIX is rising, but remains at levels typical of a bull market.

ASX 200

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India, Japan bullish but China hesitates

Hong Kong’s Hang Seng Index is testing support at 24000. Breach of the rising trendline warns of a correction. 13-Week Twiggs Money Flow holding above zero continues to indicate long-term buying pressure. Respect of support at 24000 would suggest another advance; confirmed if there is follow-through above 25000. Breach of support, however, would also warn of a correction — to the primary trendline around 22000.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index is consolidating below resistance at its 2013 high. Rising 13-week Twiggs Money Flow continues to indicate medium-term buying pressure. Breakout above 2350 would signal a fresh advance, while reversal below 2250 would warn of a correction.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex recovered above 27000, suggesting an advance to 28000*. Rising 13-week Twiggs Money Flow suggests medium-term buying pressure. Breach of the secondary rising trendline is unlikely, but would warn of a correction.

Sensex

* Target calculation: 27000 + ( 27000 – 26000 ) = 28000

Japan’s Nikkei 225 index is testing resistance at its 2013 high of 16300. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 16300 would offer a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of a correction.

Nikkei 225

* Target calculation: 16000 + ( 16000 – 14000 ) = 18000

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Europe finds resistance

Germany’s DAX is testing resistance at 9800. Breakout would signal another advance, while follow-through above 10000 would confirm. Bearish divergence on 13-week Twiggs Money Flow followed by a dip below zero, however, warns of long-term selling pressure. Reversal below 9600 would warn of another test of primary support at 9000/8900.

DAX

Dow Jones Euro Stoxx 50 is testing resistance at its recent high of 3300. Breakout would suggest an advance to 3600*, but bearish divergence on 13-week Twiggs Momentum (and Twiggs Money Flow) warns that sellers dominate. Reversal below 3200 would indicate another test of primary support at 2975/3000.

Dow Jones Euro Stoxx 50

The Footsie is testing medium-term support at 6750. Breach would warn of another test of primary support at 6400/6500. Oscillation of 13-week Twiggs Money Flow above zero, however, continues to warn of long-term buying pressure. Breakout above long-term resistance at 6900 would signal a primary advance.

FTSE 100

* Target calculation: 7000 + ( 7000 – 6000 ) = 8000

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Canada: TSX 60 correction

Canada’s TSX 60 broke short-term support at 890, warning of a correction. Respect of support at 865 would confirm that the primary trend is intact, while failure would indicate weakness. Reversal of 13-week Twiggs Momentum below zero is unlikely, but would warn of reversal to a (primary) down-trend.

TSX 60

* Target calculation: 900 + ( 900 – 865 ) = 935

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