Category: Stock Markets

Analysis of major stock markets around the world.

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DAX and Footsie bullish

DAX is testing the psychological barrier of 10000. Recovery of 13-week Twiggs Money Flow above the descending trendline indicates medium-term buying pressure. Breakout above 10000 would signal an advance to 10500*. Reversal below 9750 is unlikely, but would warn of a correction.

DAX

* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

The Footsie is gathering strength for another attempt at resistance around 6850/6880. Rising 13-week Twiggs Money Flow troughs above zero indicate long-term buying pressure. Breakout would signal an advance to 7200*. Reversal below 6740 is less likely, but would warn of a correction to primary support at 6400/6500.

FTSE 100

* Target calculation: 6800 + ( 6800 – 6400 ) = 7200

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Fedex brings a warm glow

Summary:

  • Bellwether transport stock Fedex completes a cup-and-handle continuation pattern.
  • The Dow continues its strong up-trend.

Bellwether transport stock Fedex completed a strong cup and handle continuation pattern, offering a target of 160*. Recovery of 13-week Twiggs Money Flow above zero and the descending trendline indicates medium-term buying pressure. Breakout brings a warm glow as I find Fedex one of the most reliable indicators of overall market direction — as in November 2007.

Fedex

* Target calculation: 145 + ( 145 – 130 ) = 160

Dow Jones Industrial Average is testing medium-term resistance at 17000. Breakout is likely and would signal an advance to 17500*. Recovery of 13-week Twiggs Money Flow above the descending trendline would indicate medium-term buying pressure. Reversal below 16750 is unlikely, but would warn of a correction.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

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Canada: TSX 60 marches on

Canada’s TSX 60 marches on towards its target of the 2008 high at 900. Rising troughs on 13-week Twiggs Money Flow signal strong buying pressure. Reversal below support at 845 is unlikely.

TSX 60

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Good week for the S&P 500 but not the ASX

Summary:

  • A good week for US markets.
  • China continues to threaten further down-side.
  • The ASX 200, pulled in opposite directions, is range bound for the present.
  • Momentum strategies require persistence.

The S&P 500 broke through 1950 and is expected to test the next resistance level at 2000*. Rising 21-day Twiggs Money Flow signals medium-term buying pressure. Reversal below 1925 is unlikely at present but would warn of a correction.

S&P 500

* Target calculation: 1900 + ( 1900 – 1800 ) = 2000

The CBOE Volatility Index (VIX) continues its downward path, indicating low risk typical of a bull market.

S&P 500 VIX

The Shanghai Composite Index rebounded Friday after a tough week and continues to test primary support at 1990/2000. Breach of support would signal a decline to 1850*. 21-Day Twiggs Money Flow oscillating above zero indicates buying support; a fall below zero would suggest selling pressure. The primary trend is expected to continue its downward path, but this is a managed descent and an abrupt fall seems unlikely.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

After a strong surge on Thursday the ASX 200 retreated below 5450 on Friday, suggesting another test of support at 5400. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Breach of support is likely and would indicate a correction to 5300. Recovery above 5500 is unlikely at present, but the long-term trend remains upward.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

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A good week for the S&P 500 but not the ASX

Summary:

  • Good week for US markets.
  • China continues to threaten further down-side.
  • The ASX 200, pulled in opposite directions, is range bound for the present.
  • Momentum strategies require persistence.

The S&P 500 broke through 1950 and is expected to test the next resistance level at 2000*. Rising 21-day Twiggs Money Flow signals medium-term buying pressure. Reversal below 1925 is unlikely at present but would warn of a correction.

S&P 500

* Target calculation: 1900 + ( 1900 – 1800 ) = 2000

The CBOE Volatility Index (VIX) continues its downward path, indicating low risk typical of a bull market.

S&P 500 VIX

The Shanghai Composite Index rebounded Friday after a tough week and continues to test primary support at 1990/2000. Breach of support would signal a decline to 1850*. 21-Day Twiggs Money Flow oscillating above zero indicates buying support; a fall below zero would suggest selling pressure. The primary trend is expected to continue its downward path, but this is a managed descent and an abrupt fall seems unlikely.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

After a strong surge on Thursday the ASX 200 retreated below 5450 on Friday, suggesting another test of support at 5400. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Breach of support is likely and would indicate a correction to 5300. Recovery above 5500 is unlikely at present, but the long-term trend remains upward.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Resist the urge to avoid discomfort

Momentum stocks have suffered a fair degree of turbulence since April, after a strong first quarter. Investors unfortunately have to endure periods like this, when the market appears hesitant or lacks direction, in much the same the same way as travelers can expect turbulence during an air flight. It is important is to resist the urge to avoid discomfort by exiting positions. Enduring uncomfortable parts of the journey are necessary if you want to reach your intended destination. Our research on both the ASX and S&P 500 has shown that attempting to time secondary movements in the markets does not enhance but erodes performance: the average (re-)entry price is higher than the average exit price after accounting for brokerage.

A basic rule of thumb in investing is that investors need to endure higher volatility in order to achieve higher returns. If your investment time frame is long-term, it is important to focus on the end result and not be overly concerned by weekly fluctuations.

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Robert Shiller: CAPE should not be used for market timing

From an interview with Robert Shiller in January 2013:

Blodget: ….one frustration a lot of people have with the cyclically adjusted P/E and others is that it’s not particularly helpful for the timing mechanism, do you think it’s good to use as a sort of projected 10-year return, where when P/Es are high the return tends to be low, and vice versa?

Shiller: John Campbell, who’s now a professor at Harvard, and I presented our findings first to the Federal Reserve Board in 1996, and we had a regression, showing how the P/E ratio predicts returns. And we had scatter diagrams, showing 10-year subsequent returns against the CAPE, what we call the cyclically adjusted price earnings ratio. And that had a pretty good fit. So I think the bottom line that we were giving – and maybe we didn’t stress or emphasize it enough – was that it’s continual. It’s not a timing mechanism, it doesn’t tell you — and I had the same mistake in my mind, to some extent — Wait until it goes all the way down to a P/E of 7, or something.

Blodget: Right, perfectly safe, so then you can buy.

Shiller: But actually, the lesson there is that if you combine that with a good market diversification algorithm, the important thing is that you never get completely in or completely out of stocks. The lower CAPE is, as it gradually gets lower, you gradually move more and more in. So taking that lesson now, CAPE is high, but it’s not super high. I think it looks like stocks should be a substantial part of a portfolio.

Read more at Robert Shiller On Stocks – Business Insider.

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European stocks’ strong Ichimoku trend

Weekly charts of Ichimoku Cloud show European stocks in an up-trend. Dow Jones Euro Stoxx 50 displays healthy separation above a green cloud. The signal is further strengthened by blue (Tenkan) holding above the red (Kijun) line for the last 6 months.

Dow Jones Euro Stoxx 50

* Target calculation: 3200 + ( 3200 – 3000 ) = 3400

The DAX is consolidating below the psychological barrier of 10000, while displaying healthy separation above a green Ichimoku cloud. Breakout would confirm the recent buy signal where blue (Tenkan) crossed above the red (Kijun) line. Target for an advance would be 10500*. Reversal below 9700 is unlikely, but would warn of a correction.

DAX

* Target calculation: 9750 + ( 9750 – 9000 ) = 10500

The Footsie is struggling to break resistance at 6850/6880 and getting squeezed against the rising green cloud. Ichimoku still signals an up-trend but this is markedly weaker than the other two indices. Breakout would signal an advance to 7200*, but reversal below 6800 warns of another correction — likely to find support at the upper border of the cloud.

FTSE 100

* Target calculation: 6800 + ( 6800 – 6400 ) = 7200

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Asian stocks revive

India’s Sensex is retracing to test the new support level at 25000. Respect would confirm an advance to 26000*. The primary trend is up and rising 21-day Twiggs Money Flow suggests buying pressure. Breach of 25000 is unlikely, but would warn of a test of 24000.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

China’s Shanghai Composite Index is headed for another test of 2150 after breaking resistance at 2050. A 21-day Twiggs Money Flow trough at zero signals medium-term buying pressure. Breakout above 2150 is unlikely, but would complete a triple-bottom reversal. Reversal below primary support at 1990/2000 also appears unlikely at present, but would signal a decline to 1850*.

Shanghai Composite Index

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

Japan’s Nikkei 225 found resistance at 15000/15200 on the weekly chart. A 13-week Twiggs Money Flow trough above zero signals long-term buying pressure. Breakout above 15200 would target 16000. Reversal below 14800 is unlikely, but would signal a test of primary support at 14000.

Nikkei 225

Hong Kong’s Hang Seng Index is headed for a test of long-term resistance at 24000 on the monthly chart. A 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Breakout above 24000 would signal a primary advance to 27000*. Reversal below 21000 and the rising trendline is most unlikely, but would warn of reversal to a primary down-trend.

Hang Seng Index

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

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ASX 200 tests support

The ASX 200 is testing medium-term support at 5400. Long tails and recovery of 21-day Twiggs Money Flow above zero signal buying pressure. A close below 5400 would warn of a test of 5300, while recovery above 5460 would suggest another attempt at 5550.

ASX 200

* Target calculation: 5550 + ( 5550 – 5400 ) = 5700

While not as strong as North American markets, the weekly index has maintained a healthy distance above a green Ichimoku Cloud. There are no signs of a long-term trend reversal.

ASX 200

ASX 200 VIX is also holding at low levels indicative of a bull market.

ASX 200

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Canada: TSX 60 Ichimoku trend

Canada’s TSX 60 again shows a strong trend, trading high above a strong green cloud, with no recent crosses of blue (Tenkan) below the red (Kijun) line. Expect a test of the 2008 high at 900. Reversal below support at 830 is unlikely.

TSX 60

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