Tag: ASX 200

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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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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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ASX 200 weakens but Aussie dollar strengthens

  • Aussie dollar strengthens.
  • Stocks weaken.
  • But ASX 200 VIX continues to indicate a bull market.

The Aussie Dollar is testing resistance at $0.94. Consolidation in a narrow band suggests continuation of the rally towards $0.97/$0.98. Recovery of 13-week Twiggs Momentum above zero suggests a primary up-trend, but we may see the RBA intervene to prevent this. They may need to follow the RBNZ, introducing macro-prudential controls (e.g. setting a maximum 80% LVR percentage), to take the steam out of the housing market while lowering interest rates to weaken the currency.

Aussie Dollar

The ASX 200 respected resistance at 5500 and is headed for a test of medium-term support at 5400. Reversal of 21-day Twiggs Money Flow below zero warns of medium-term selling pressure and a correction. Breach of 5400 is likely and would test support at 5300 and the rising trendline. Respect of 5400 is unlikely, but would suggest another rally to 5550.

ASX 200

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

ASX 200 VIX below 12, however, continues to indicate low risk typical of a bull market.

ASX 200

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ASX 200 retreats

The ASX 200 closed below short-term support at 5500, warning of another test of support at 5400. Declining 21-day Twiggs Money Flow indicates short-term selling pressure. Breakout above 5550 is unlikely in the short-term, but would signal an advance to 5700*.

ASX 200

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

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

ASX 200

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ASX 200 warns of correction

The ASX 200 reversed below its secondary rising trendline, warning of a correction. Oscillation of 21-day Twiggs Money Flow above zero, however, continues to indicate long-term buying pressure.

ASX 200

A correction would be likely to test the primary trendline and support at 5300. Another 13-week Twiggs Money Flow trough above zero would strengthen conviction of a bull market.

ASX 200

ASX 200 VIX rose to 13, but still indicates low risk typical of a bull market.

ASX 200

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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

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ASX 200 breakout

The ASX 200 broke resistance at 5500, signaling a primary advance to 5800*. A 13-week Twiggs Money Flow trough above zero indicates buying pressure. Reversal below 5450 is unlikely, but would warn of a correction.

ASX 200

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

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Aussie strong despite ASX

The ASX 200 broke its rising trendline and short-term support to signal a correction. Declining 21-day Twiggs Money Flow indicates short-term selling pressure (a trough that respects zero would be a bullish sign). Breach of 5290/5300 would warn of a test of primary support at 5050. Failure of primary support is unlikely, but would signal a down-trend. Recovery above 5460 is also unlikely at present, but would signal a fresh advance.

ASX 200

* Target calculation: 5450 + ( 5450 – 5300 ) = 5600

ASX 200 VIX is rising, but continues to indicate low risk typical of a bull market.

ASX 200

The Aussie Dollar remains strong, consolidating at $0.94 despite ASX weakness. Bullish divergence on 13-week Twiggs Momentum signals a primary up-trend, but we may see the RBA intervene to prevent this. The RBA may need to follow the RBNZ, with macro-prudential controls, to take the steam out of the housing market (setting a maximum LVR percentage, for example) if further rate cuts become necessary.

Aussie Dollar

* Target calculation: 0.93 + ( 0.93 – 0.91 ) = 0.95

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Markets warn of correction

Before we examine the US and Australian markets, please take a look at the two charts below and tell me whether the trend is up or down. If you have a five-year old or six-year old handy, try asking them.

S&P 500

And the second one:

ASX 200

The trend on both is clear. If we invert the charts, you will recognize the S&P 500:

S&P 500

The S&P 500 breach of support at 1840 warns of a secondary correction and a sharp fall on 13-week Twiggs Money suggests selling pressure similar to the correction in late 2012. But the primary trend is up.

Likewise the ASX 200. The index retreated from 5500 and follow-through below 5380 would warn of a secondary correction. But 13-week Twiggs Money Flow oscillating above zero indicates buying pressure and the primary trend remains upward.

ASX 200

Momentum stocks are experiencing a sell-off, but our strategy is to hold existing positions. Attempting to time entries and exits in secondary corrections erodes performance. None of our market filters indicate elevated risk and we are confident that this is a bull market.

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Are we in a bull market?

A simple reflection of the weekly trend on major markets using Ichimoku Cloud. Candles above the cloud indicate an up-trend, below the cloud indicates a down-trend, while in the cloud reflects uncertainty. From West to East:
S&P 500
S&P 500
Footsie
FTSE 100
DAX
DAX
ASX 200
ASX 200
Nikkei 225 is testing primary support at 14000 and looks a bit weaker
Nikkei 225
While China is holding above primary support at 1950/2000 but shows no clear trend
Shanghai Composite

Overall, there is a strong case for a bull market.

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