Stock Markets Archives - Page 91 of 170

May 14, 2014

ASX 200 signals advance

A monthly chart of the ASX 200 also gives a clearer perspective of market direction. Breakout above 5450 signals an advance while follow-through above 5550 would confirm a target of 6000*. A 13-week Twiggs Money Flow trough above zero is promising, but needs to be strengthened by a breakout above the descending trendline. Reversal below the secondary rising trendline on the index chart is unlikely, but would warn of a test of the primary trendline.

ASX 200

* Target calculation: 5500 + ( 5500 – 5000 ) = 6000

ASX 200 VIX below 12 indicates low risk typical of a bull market.

ASX 200

May 14, 2014

India bullish while China, Japan remain weak

Sometimes monthly charts provide a clearer view of market direction by eliminating short-term noise.

India’s Sensex displays a primary advance, since breaking resistance at 21000, offering a long-term target of 26000*. Rising 13-week Twiggs Money Flow troughs above zero indicate strong buying pressure. Correction to test the rising trendline and support at 22000 should not be ruled out, but the primary trend is upward.

Sensex

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

The Shanghai Composite Index continues its gradual descent to a carefully managed soft-landing. Declining 13-week Twiggs Money Flow indicates selling pressure. Breach of primary support at 1980 would offer a target of 1750*.

Shanghai Composite Index

* Long-term target calculation: 2000 – ( 2250 – 2000 ) = 1750

Japan’s Nikkei 225 is testing primary support at 14000, while a large bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Breach of 14000 would confirm a primary down-trend. Recovery above 15000 and the descending trendline, however, would indicate another test of 16000*.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

May 14, 2014

Canada: TSX 60 respects support

Canada’s TSX 60 respected support at 820. Recovery above the highs of the previous two weeks would indicate an advance to the 2008 high of 900. Rising 13-week Twiggs Money Flow, with troughs above zero, signals long-term buying pressure. Reversal below the rising trendline is unlikely, but would warn that a top is forming.

TSX 60

May 14, 2014

Dow and S&P 500 bullish, but Nasdaq cautious

Dow Jones Industrial Average broke resistance at its previous high of 16600, signaling a primary advance to 17500*. Recovery of 21-day Twiggs Money Flow above zero indicates medium-term buying pressure. Reversal below 16500 is unlikely, but would warn of a bull trap.

Dow Jones Industrial Average

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

The S&P 500 is testing resistance at its previous high of 1900. Breakout would confirm an advance to 1950*. The 21-day Twiggs Money Flow trough above zero indicates long-term buying pressure. Reversal below 1850 is unlikely, but would warn of a bull trap (and correction to test primary support at 1750).

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950

CBOE Volatility Index (VIX) at 12 indicates low risk typical of a bull market.

VIX Index

The Nasdaq 100 broke 3600, suggesting another advance, but only breakout above 3750 would confirm. Bearish divergence on 13-week Twiggs Money Flow and a cross below zero warns of selling pressure. Reversal below 3400 is unlikely, but would warn of a down-swing to the primary trendline.

Nasdaq 100

* Target calculation: 3700 + ( 3700 – 3400 ) = 4000

May 8, 2014

Is the market overpriced? Episode III

US markets look pricey when we compare market capitalization to GDP. Why is the market ignoring this?

The S&P 500 is trading on a reasonable forward Price-Earnings Ratio (PE) of 15.17, but this forecasts a 23% jump in earnings over the next 12 months. Current as reported PE of 18.64 also assumes strong earnings growth.

S&P 500

Margins are growing:
S&P 500

But sales growth close to zero warns that earnings may falter:
S&P 500

Book value is surprisingly growing faster than sales, suggesting that corporations are hoarding assets rather than distributing profits to shareholders:
S&P 500

Causing asset turnover (sales/book value) to fall:
S&P 500

Which is why the valuation metric of Price to Book Value remains within reasonable bounds:
S&P 500

If management are unable to improve asset turnover — through improved sales or new investment — stockholders will start clamoring for higher distributions. Which may be one reason for high stock prices.

The second reason is that, with interest rates, tax rates and real wages at historic lows, corporations are likely to make fat profits over the next few years and stocks remain reasonably buoyant. But at least one of these factors can be expected to change in the next decade: recovery of the housing market would cause the Fed to lift interest rates; a revision of the tax code by a President who can work with both sides of the House; or a dramatic fall in exchange rates placing upward pressure on (real) wages as manufacturers regain export markets. The impact of any change will depend on how well the economy has recovered.

I will be watching sales growth, profit margins and asset turnover with interest over the next few quarters to see how this plays out.

May 7, 2014

Is the market overpriced? Episode II

Using Warren Buffett’s favorite broad market valuation metric of market capitalisation over GDP*, we can see valuations are on the high side, near to levels from early 2006, but nowhere near the alarming bubble of two years later. The Dotcom bubble (not shown) was even more severe.

NYSE Market Cap/Nominal GNP

*I have used GNP (or GNI as some call it) as this more accurately includes offshore income.

Australian investors will be relieved to find the ASX, at 100, reflects fair value. Even if we ignore the 2007 property/resources bubble.

ASX Market Cap/Nominal GNP

May 7, 2014

Is the market overpriced?

David Leonhardt published this graph from Robert Shiller in his piece in the NY Times:

Shiller CAPE

I have one major issue with this: stock values are based on FUTURE earnings, not PAST earnings. The two are only related if earnings for the past 10 years are indicative of earnings for the next 10 years. I suspect that the next 10 years will present a whole new rash of unforeseen problems, but will be nothing like the last 10 years — any more than the period 2001 to 2010 resembles 1991 to 2000 (or 1981 to 1990).

May 7, 2014

Selling pressure rises

S&P 500 displays little direction while bearish divergence on 13-week Twiggs Money Flow continues to signal selling pressure. Reversal below 1850 would warn of a correction to test primary support at 1750. Breakout above 1900, however would signal an advance to 1950.

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950

The primary trend remains upward and CBOE Volatility Index (VIX) below 14 continues to indicate low risk typical of a bull market.

VIX Index

The Nasdaq 100 is struggling to break 3600 and reversal below 3400 would warn of a down-swing to the primary trendline. 13-Week Twiggs Money Flow below zero warns of selling pressure, but breakthrough above 3600 would suggest another advance.

Nasdaq 100

* Target calculation: 3700 + ( 3700 – 3400 ) = 4000

The Russell 2000 is testing primary support at 11.00. Follow-through below 10.80 would confirm. Small caps outstripped large caps over the last 18 months, but now appear to be faltering. A 13-week Twiggs Momentum cross below zero would also warn of small cap reversal to a down-trend. A small cap down-trend would not necessarily mean large caps will follow: large caps significantly outperformed small caps for more than 3 years leading up to the 2000 Dotcom crash.

Russell 2000

Canada’s TSX 60 is retracing, but unlikely to break support at 820 and the rising trendline. Rising 13-week Twiggs Money Flow, with troughs above zero, indicates long-term buying pressure. Respect of support would suggest an advance to the 2008 high of 900.

TSX 60

April 30, 2014

TSX 60 targets 900

Canada’s TSX 60 followed through above 825/830, signaling an advance to the 2008 high of 900. Rising 13-week Twiggs Money Flow, above zero, indicates long-term buying pressure. Reversal below 825 is unlikely, but would warn of a correction to 770.

TSX 60

April 30, 2014

S&P 500 follows through

S&P 500 follow-through above short-term resistance at 1880 strengthens the case for an advance to 1950. Breakout above 1900 would confirm. A 13-week Twiggs Money Flow above zero would signal long-term buying pressure. Reversal below 1850 is unlikely, but would warn of a test of primary support at 1750.

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950

CBOE Volatility Index (VIX) below 14 indicates low risk typical of a bull market.

VIX Index

Nasdaq 100 breakout above 3600 would suggest a fresh advance. Follow-through above 3750 would confirm, offering a target of 4000*. Recovery of 13-week Twiggs Money Flow above zero would also be a bullish sign, while respect of resistance at 3600 would be bearish.

Nasdaq 100

* Target calculation: 3700 + ( 3700 – 3400 ) = 4000

The primary trend is upward and none of our market filters indicate elevated risk.