Tag: BSE Sensex

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Bear Rally

North America

Construction activity continues to advance. The graph below shows Total US Construction Spending adjusted for inflation (Core CPI). Spending is substantially below the 2004 to 2007 property bubble but equates to the earlier Dotcom era. The steep rise suggests that rate increases will be necessary to prevent another bubble.

US Construction Spending adjusted by Core CPI

The S&P 500 is testing resistance at 2000. Bullish divergence on 21-day Twiggs Money Flow indicates (medium-term) buying pressure. Recovery above 2000 would signal a relieving rally, with a target (from the double-bottom pattern) of 2130*. The market remains bearish and respect of 2130 would warn of another test of primary support at 1870.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1870 ) = 2130

The CBOE Volatility Index (VIX) below 20 indicates market risk is easing. We need to remain vigilant for the next few weeks as VIX can be prone to false breaks.

S&P 500 VIX

NYSE short sales are subdued.

Dow Jones Industrial Average is similarly testing resistance at 17000 on the weekly chart. Breakout would offer a similar target of 18300. Recovery of 13-week Twiggs Money Flow above zero indicates buying pressure. Reversal below 16000 is unlikely, but would confirm a primary down-trend.

Dow Jones Industrial Average

Canada’s TSX 60 recovered above the former primary support level at 800. Follow-through above 820 would signal a relieving rally. Weak 13-week Twiggs Momentum, below zero, warns the market is still bearish.

TSX 60 Index

* Target calculation: 820 + ( 820 – 750 ) = 890

Europe

Germany’s DAX remains weak, with 13-week Twiggs Money Flow below zero. Recovery above 10500 would indicate a bear rally. Only follow-through above 11000 would signal that the down-trend is over.

DAX

The Footsie proved more resilient, respecting support at 6000 with 13-week Twiggs Money Flow holding above zero. Breakout above 6300 indicates a relieving rally, while follow-through above the descending trendline would suggest that the correction is over. Reversal below 6000 is unlikely, but would confirm the primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index continues to test government-enforced support at 3000. Recovery above 3500 is most unlikely.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index rallied to test resistance at 22500, while 13-week Twiggs Money Flow recovered above zero. Follow-through above 22500 would indicate another test of 24000. But this remains a bear market and reversal below 22500 would warn of another decline.

Hang Seng Index

Japan’s Nikkei 225 respected primary support at 17000. Gradual decline on 13-week Twiggs Money Flow suggests a secondary correction. Recovery above 19000 would indicate another test of 21000.

Nikkei 225 Index

* Target calculation: 19000 + ( 19000 – 17000 ) = 21000

India’s Sensex followed through above resistance at 26500, indicating a bear rally. Strong buying pressure, signaled by a 13-week Twiggs Money Flow trough above zero, suggests a reversal. Breakout above 28500 would confirm. Reversal below 25000 is unlikely, but would confirm a primary down-trend.

SENSEX

Australia

A monthly chart of the ASX 200 shows the significance of the 5000 support level.

ASX 200 monthly

Rising 21-Day Twiggs Money Flow on the daily chart indicates medium-term buying pressure. Breakout above 5300 would offer a target of 5700. But expect stiff resistance between 5200 and 5300 — already flagged by a tall shadow on today’s candlestick. Breach of 5000 is unlikely at present, but would confirm a primary down-trend.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600


More….

Crude: Another bear rally

Gold down-trend continues

Sen. John McCain on Russia’s airstrikes in Syria

Paddleboarding with whales

Deleveragings go on for about 15 years. The process of raising debt relative to incomes goes on for 30 or 40 years, typically. There’s a last big surge, which we had in the two years from 2005 to 2007 and from 1927 to 1929, and in Japan from 1988 to 1990, when the pace becomes manic. That’s the classic bubble. And then it takes about 15 years to adjust.

~ Ray Dalio, Bridgewater Associates

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Bears out in force

Bears continue to dominate equity markets. Patches of support are visible across North America, Europe and Asia but this is likely to be a secondary rally rather than a trend change.

The Russian bear is also playing up. This time in Syria. Senator John McCain sums up the escalating crisis in the Middle East in this 15-minute video.

North America

The S&P 500 respected support between 1870 and 1900, rallying toward another test of resistance at 2000. The 21-day Twiggs Money Flow peak just above zero continues to indicate (medium-term) selling pressure. Recovery above 2000 is unlikely, but would signal a relieving rally. Breach of support at 1870 would confirm the primary down-trend.

S&P 500 Index

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

The CBOE Volatility Index (VIX) holding above 20 indicates elevated market risk.

S&P 500 VIX

NYSE short sales remain subdued.

Dow Jones Industrial Average is testing support at 16000. Long tails on the last two weekly candles and recovery of 13-week Twiggs Money Flow above zero indicate strong support. Breach of 16000 would confirm a primary down-trend but we are likely to see a (secondary) bear rally beforehand.

Dow Jones Industrial Average

Bellwether transport stock Fedex continues to warn of a contraction in economic activity.

Fedex

And retail sales growth remains subdued.

Retail Sales and Core CPI

A long tail on Canada’s TSX 60 indicates continued support despite the breach of 790. Declining 13-week Twiggs Momentum below zero indicates a primary down-trend. Recovery above 820 is unlikely, but would suggest a bear trap.

TSX 60 Index

* Target calculation: 800 – ( 900 – 800 ) = 700

Europe

Germany’s DAX signals a primary down-trend, but appears to have found secondary support at 9500. Recovery of 13-week Twiggs Money Flow above zero would suggest a bear rally.

DAX

The Footsie found strong support at 6000, with long tails and 13-week Twiggs Money Flow recovering above zero. Penetration of the descending trendline is unlikely but would warn of a bear trap. Breach of support at 6000 is more likely and would confirm the primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index continues to test government-enforced support at 3000. Recovery above 3500 is most unlikely. Breach of 3000 would warn of another sharp sell-off.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index broke support at 21000, confirming the primary down-trend — signaled earlier by 13-week Twiggs Money Flow.

Hang Seng Index

Japan’s Nikkei 225 is testing primary support between 16500 and 17000. Gradual decline on 13-week Twiggs Money Flow suggests a secondary correction, but reversal of 13-week Momentum below zero warns of a primary down-trend. Breach of 16500 would confirm.

Nikkei 225 Index

* Target calculation: 17500 – ( 19000 – 17500 ) = 16000

India’s Sensex found support at 25000 before testing resistance at 26500. 13-Week Twiggs Money Flow trough above zero indicates strong buying pressure. Recovery above 26500 would warn of a bear trap. Reversal below 25000 is less likely, but would confirm the primary down-trend.

SENSEX

* Target calculation: 25000 – ( 26500 – 25000 ) = 23500

Australia

The ASX 200 also shows solid support at 5000, with rising 21-Day Twiggs Money Flow indicating medium-term buying pressure. Recovery above 5200 would indicate a bear rally. Breach of 5000 remains likely, however, and would confirm the primary down-trend.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600


More….

Gold and Treasury yields decline as inflation weakens

Sen. John McCain on Russia’s airstrikes in Syria

Japan abandons Fed-style inflation targeting and targets GDP growth instead

Deflation supercycle is over as world runs out of workers | Telegraph

Australia: Latest SMSF statistics | FINSIA

I think anybody who is a great investor, a good investor, a successful investor has to be a person who can be both aggressive and defensive….. have enough fear to have the caution. But you can’t let the fear control you.

~ Ray Dalio, Bridgewater Associates

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Beware of the Bear

This time it’s not the Russian bear but stock market bears that we need to beware of. Signals across global markets warn of a major down-turn.

North America

The S&P 500 respected resistance at 2000, the false break warning of a bull trap. A 21-day Twiggs Money Flow peak just above zero indicates (medium-term) selling pressure. Recovery above 2000 is unlikely, but would signal a relieving rally. Breach of support at 1870 would confirm the primary down-trend.

S&P 500 Index

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

The CBOE Volatility Index (VIX) is holding above 20, indicating elevated market risk.

S&P 500 VIX

NYSE short sales spiked up close to 1.2 billion on Friday, September 18th.

NYSE Short Sales

13-Week Twiggs Money Flow crossed below zero on the (S&P 500) weekly chart, warning of a primary down-trend.

S&P 500 Index

Dow Jones Industrial Average is testing support at 16000. Decline of 13-week Twiggs Money Flow below zero warns of a primary down-trend. Breach of 16000 would confirm the signal.

Dow Jones Industrial Average

Canada’s TSX 60 retreated below 790, confirming a primary down-trend. Declining 13-week Twiggs Momentum below zero strengthens the signal.

TSX 60 Index

* Target calculation: 800 – ( 900 – 800 ) = 700

Europe

Germany’s DAX retreated below support at 10000. Decline of 13-week Twiggs Money Flow below zero again warns of a primary down-trend.

DAX

The Footsie is in a similar position, with 13-week Twiggs Money Flow below zero. Breach of support at 6000 would confirm a primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index continues to test (government-backed) support at 3000. Recovery above 3500 is most unlikely. Breach of 3000 would warn of a sharp sell-off.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index bear rally failed and the index is again testing support at 21000. Breach would confirm the primary down-trend signaled by 13-week Twiggs Money Flow.

Hang Seng Index

Japan’s Nikkei 225 is having difficulty breaking resistance at 19000. Gradual decline on 13-week Twiggs Money Flow suggests medium-term selling pressure, but reversal of 13-week Momentum below zero warns of a primary down-trend.

Nikkei 225 Index

* Target calculation: 17500 – ( 19000 – 17500 ) = 16000

India’s Sensex respected resistance at 26500. Reversal below 25000 would confirm a primary down-trend. 13-Week Twiggs Money Flow holding above zero indicates medium-term buying pressure.

SENSEX

But 13-week Twiggs Momentum below zero warns of a primary down-trend.

SENSEX

* Target calculation: 25000 – ( 26500 – 25000 ) = 23500

Australia

The ASX 200 also displays medium-term buying pressure, with rising 21-Day Twiggs Money Flow. But this is unlikely to withstand global bearish forces. Breach of 5000 would confirm a primary down-trend. Recovery above 5300 is most unlikely, but would indicate a bear rally.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600


More….

Gold: No safety here

Crude at $30 per barrel?

Deflation supercycle is over as world runs out of workers | Telegraph

Australia: Latest SMSF statistics | FINSIA

Deleveragings go on for about 15 years. The process of raising debt relative to incomes goes on for 30 or 40 years, typically. There’s a last big surge, which we had in the two years from 2005 to 2007 and from 1927 to 1929, and in Japan from 1988 to 1990, when the pace becomes manic. That’s the classic bubble. And then it takes about 15 years to adjust.

~ Ray Dalio, Bridgewater Associates

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Will the Fed hike rates?

The market eagerly awaits the decision of the Fed Open Market Committee (FOMC) on whether to lift the target interest rate (FFR) from its 0.00 – 0.25 percent range maintained since the dark days of 2008.

Core CPI

Core CPI remains subdued at 1.83 percent for the 12 months to August — close to its 2 percent target — so there is no urgency to increase rates despite a strengthening job market.

The act of revising the target rate is largely symbolic. There is no doubt that the economy can withstand an increase in the Fed Funds Rate to 0.5%. But commencement of a tightening cycle may scare an already jittery market. There is a fairly equal split amongst economists as to whether the Fed should proceed with the rate rise or not. My guess is that the Fed will opt for a bet each way, with a wider target range (say 0.00 to 0.50 percent) or a reduced increment (say 0.10 to 0.30 percent). The effective FFR is currently sitting at 0.14 percent and I am sure the Fed’s plan is to continue with a gradual increase over time and no sudden movements.

Effective Fed Funds Rate

The S&P 500 is testing resistance at 2000 after a higher trough and rising 21-day Twiggs Money Flow indicate buying pressure. Recovery above 2000 would signal a relieving rally, while respect of resistance would suggest another test of support at 1900.

S&P 500 Index

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

The CBOE Volatility Index (VIX) indicates market risk is declining.

S&P 500 VIX

NYSE short sales are also declining.

NYSE Short Sales

Dow Jones Industrial Average closed above resistance at 16700. Follow-through after the FOMC decision would confirm a relieving rally. Reversal below 16600 would warn of another test of 16000. Failure of support at 16000 is unlikely, but would signal a primary down-trend. Recovery of 21-day Twiggs Money Flow above zero indicates medium-term buying pressure.

Dow Jones Industrial Average

Canada’s TSX 60 recovered above 800, indicating solid support between 790 and 800. Recovery above 820 and the descending channel would signal that the correction has ended. Rising 13-week Twiggs Momentum would strengthen the signal, while recovery above zero would confirm.

TSX 60 Index

* Target calculation: 800 – ( 900 – 800 ) = 700

Europe

Germany’s DAX found support at 10000. Recovery above 10500 would suggest a relieving rally, but only follow-through above the descending trendline and resistance at 11000 would confirm. Respect of the zero line by 13-week Twiggs Money Flow is a bullish sign; completion of a trough above zero would confirm long-term buying pressure.

DAX

The Footsie similarly found support at 6000. Recovery above 6300 would indicate a relieving rally. Penetration of the descending trendline would confirm.

FTSE 100

Asia

The Shanghai Composite Index continues to test (enforced) support at 3000. Recovery above 3500 is unlikely, but would indicate that the crisis has passed.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index found support at 21000 and is likely to test the former primary support level at 23000. 13-Week Twiggs Money Flow below zero indicates long-term selling pressure, but recovery above zero would suggest a false signal. Breakout above 23000 and the descending trendline is unlikely, but would signal that the down-trend is over.

Hang Seng Index

Japan’s Nikkei 225 found support at 17500. Recovery above 19000 would signal a rally to test resistance at 21000. The gradual decline on 13-week Twiggs Money Flow suggests medium-term selling pressure rather than a primary (long-term) shift.

Nikkei 225 Index

* Target calculation: 19000 + ( 19000 – 17500 ) = 20500

India’s Sensex is headed for a test of the new resistance level at 26500. The primary trend is downward. Respect of the zero line by 13-week Twiggs Money Flow indicates medium-term buying pressure. Recovery above 26500 is unlikely, but would warn of a bear trap. Respect of resistance remains more likely and would suggest another decline.

SENSEX

* Target calculation: 25000 – ( 26500 – 25000 ) = 23500

Australia

The ASX 200 continues to test primary support at 5000. 21-Day Twiggs Money Flow oscillating around zero indicates uncertainty. Breach of 5000 would confirm a primary down-trend. Recovery above 5300 is less likely, but would indicate a bear rally.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600

Just a word of caution. Relieving rallies can (and often do) fail. Probability of a continued primary up-trend will only improve once support levels have been tested. Early movers always face greater uncertainty. Which is why our long-term portfolios continue to hold high levels of cash.


More….

Why Europe Failed

Not much wrong with the US economy

NYSE short sales easing

Marcus Miller & Eric Clapton [music]

You really wonder why leaders want these jobs when they really do not want to lead. And what is their risk? That Barack Obama will not get a second term? Or that Angela Merkel’s coalition might finally end up on the rocks? If they actually made the leap they might astound themselves. Because, in the end, everyone in political life gets carried out — the only relevant question is whether the pallbearers will be crying.

~ Paul Keating, 24th Prime Minister of Australia (2011)

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A bad case of the ‘nineties

The 1990s featured two significant upheavals in global financial markets. First, 1990 saw the Nikkei collapse from its high of 39000, reaching an eventual low of 7000 in 2008.

Nikkei 225 Index

The collapse followed strong appreciation of the Yen after the September 1985 Plaza Accord and the ensuing October 1987 global stock market crash. The Plaza Accord attempted to curtail long-term currency manipulation by Japan who had built up foreign reserves — mainly through purchases of US Treasuries — to suppress appreciation of the Yen against the Dollar and maintain a current account surplus.

Seven years later, collapsing currencies during the 1997 Asian financial crisis destroyed fast-growing economies — with Thailand, South Korea and Indonesia experiencing 40%, 34% and 83% falls in (1998) GNP respectively — and eventually led to the 1998 Russian default and break up of the Soviet Union. Earlier, rapidly growing exports with currencies pegged to the Dollar brought a flood of offshore investment and easy credit into the Asian tigers. Attempts by the IMF to impose discipline and a string of bankruptcies spooked investors into a stampede for the exits. Falling exchange rates caused by the stampede led to a further spate of bankruptcies as domestic values of dollar-denominated debt skyrocketed. Attempts by central banks to shore up their currencies through raising interest rates failed to stem the outflow and further exacerbated the disaster, causing even more bankruptcies, with borrowers unable to meet higher interest charges.

What we are witnessing is a repeat of the nineties. This time it was China that attempted to ride the dragon, pegging its currency against the Dollar and amassing vast foreign reserves in order to suppress appreciation of the Yuan and boost exports. The Chinese economy benefited enormously from the vast trade surplus with the US, but those who live by the dragon die by the dragon. Restrictions on capital inflows into China may dampen the reaction, compared to the 1997 crisis, but are unlikely to negate it. The market will have its way.

Financial markets in the West are cushioned by floating exchange rates which act as an important shock-absorber against fluctuations in financial markets. The S&P 500 fell 13.5% in 1990 but only 3.5% in October 1997. The ensuing collapse of the ruble and failure of LTCM, however, caused another fall of 9.0% a year later. Not exactly a crisis, but unpleasant all the same.

North America

The domestic US economy slowed in the past few months but increased spending on light motor vehicles and housing suggested that robust employment growth would continue. Upheaval in financial markets (and exports) now appears likely to negate this, leading to a global market down-turn.

The S&P 500 breached primary support at 1980, signaling a primary down-trend. The index has fallen 4.5% from its earlier high and presents a medium-term target of 1830*. Decline of 13-week Twiggs Money Flow below zero would confirm the signal but descent has been gradual, suggesting medium-rather than long-term selling pressure.

S&P 500 Index

* Target calculation: 1980 + ( 2130 – 1980 ) = 1830

The CBOE Volatility Index (VIX) spiked upwards indicating rising market risk.

S&P 500 VIX

Bellwether transport stock Fedex broke primary support at $164, confirming the primary down-trend signaled by 13-week Twiggs Money Flow reversal below zero. The fall warns of declining economic activity.

Fedex

Canada’s TSX 60 broke primary support at 800, confirming the earlier bear signal from 13-week Twiggs Momentum reversal below zero. Target for a decline is 700*.

TSX 60 Index

* Target calculation: 800 – ( 900 – 800 ) = 700

Europe selling

Germany’s DAX broke medium-term support at 10700. Expect further medium-term support at 10000 but reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of 10000 would indicate a test of primary support at 9000.

DAX

* Target calculation: 10700 – ( 11800 – 10700 ) = 9600

The Footsie broke 6450, signaling a test of primary support at 6100. Reversal of 13-week Twiggs Money Flow below zero warns of (long-term) selling pressure. Breach of 6100 would offer a target of 5000**.

FTSE 100

* Target calculation: 6450 – ( 6800 – 6450 ) = 6100 **Long-term: 6000 – ( 7000 – 6000 ) = 5000

Asia

The Shanghai Composite reflects artificial, state-backed support at 3500. Declining 13-week Twiggs Money Flow warns of long-term selling pressure. Withdrawal of government support is unlikely, but breach of 3400/3500 would cause a nineties-style collapse in stock prices.

Shanghai Composite Index

* Target calculation: 4000 – ( 5000 – 4000 ) = 3000

Japan’s Nikkei 225 appears headed for a test of 19000. Breach would test primary support at 17000 but, given the scale of BOJ easing, respect is as likely and would indicate further consolidation between 19000 and 21000. Gradual decline of 13-week Twiggs Money Flow suggests medium-term selling pressure.

Nikkei 225 Index

* Target calculation: 21000 + ( 21000 – 19000 ) = 23000

India’s Sensex is holding up well, with rising 13-week Twiggs Money Flow signaling medium-term buying pressure. Breakout above 28500 is unlikely but would indicate another test of 30000. Decline below 27000 would warn of a primary down-trend; confirmed if there is follow-through below 26500.

SENSEX

Australia

Commodity-rich Australian stocks are exposed to China and emerging markets. The only protection is the floating exchange rate which is likely to adjust downward to absorb the shock — as it did during the 1997 Asian crisis. 13-Week Twiggs Money Flow below zero warns of (long-term) selling pressure on the ASX 200. Breach of support at 5150 is likely and would confirm a primary down-trend. Long-term target for the decline is 4400*. Respect of primary support is unlikely, but would indicate consolidation above the support level rather than a rally.

ASX 200

Posted on

A bad case of the ‘nineties

The 1990s featured two significant upheavals in global financial markets. First, 1990 saw the Nikkei collapse from its high of 39000, reaching an eventual low of 7000 in 2008.

Nikkei 225 Index

The collapse followed strong appreciation of the Yen after the September 1985 Plaza Accord and the ensuing October 1987 global stock market crash. The Plaza Accord attempted to curtail long-term currency manipulation by Japan who had built up foreign reserves — mainly through purchases of US Treasuries — to suppress appreciation of the Yen against the Dollar and maintain a current account surplus.

Seven years later, collapsing currencies during the 1997 Asian financial crisis destroyed fast-growing economies — with Thailand, South Korea and Indonesia experiencing 40%, 34% and 83% falls in (1998) GNP respectively — and eventually led to the 1998 Russian default and break up of the Soviet Union. Earlier, rapidly growing exports with currencies pegged to the Dollar brought a flood of offshore investment and easy credit into the Asian tigers. Attempts by the IMF to impose discipline and a string of bankruptcies spooked investors into a stampede for the exits. Falling exchange rates caused by the stampede led to a further spate of bankruptcies as domestic values of dollar-denominated debt skyrocketed. Attempts by central banks to shore up their currencies through raising interest rates failed to stem the outflow and further exacerbated the disaster, causing even more bankruptcies, with borrowers unable to meet higher interest charges.

What we are witnessing is a repeat of the nineties. This time it was China that attempted to ride the dragon, pegging its currency against the Dollar and amassing vast foreign reserves in order to suppress appreciation of the Yuan and boost exports. The Chinese economy benefited enormously from the vast trade surplus with the US, but those who live by the dragon die by the dragon. Restrictions on capital inflows into China may dampen the reaction, compared to the 1997 crisis, but are unlikely to negate it. The market will have its way.

Financial markets in the West are cushioned by floating exchange rates which act as an important shock-absorber against fluctuations in financial markets. The S&P 500 fell 13.5% in 1990 but only 3.5% in October 1997. The ensuing collapse of the ruble and failure of LTCM, however, caused another fall of 9.0% a year later. Not exactly a crisis, but unpleasant all the same.

North America

The domestic US economy slowed in the past few months but increased spending on light motor vehicles and housing suggested that robust employment growth would continue. Upheaval in financial markets (and exports) now appears likely to negate this, leading to a global market down-turn.

The S&P 500 breached primary support at 1980, signaling a primary down-trend. The index has fallen 4.5% from its earlier high and presents a medium-term target of 1830*. Decline of 13-week Twiggs Money Flow below zero would confirm the signal but descent has been gradual, suggesting medium-rather than long-term selling pressure.

S&P 500 Index

* Target calculation: 1980 + ( 2130 – 1980 ) = 1830

The CBOE Volatility Index (VIX) spiked upwards indicating rising market risk.

S&P 500 VIX

Bellwether transport stock Fedex broke primary support at $164, confirming the primary down-trend signaled by 13-week Twiggs Money Flow reversal below zero. The fall warns of declining economic activity.

Fedex

Canada’s TSX 60 broke primary support at 800, confirming the earlier bear signal from 13-week Twiggs Momentum reversal below zero. Target for a decline is 700*.

TSX 60 Index

* Target calculation: 800 – ( 900 – 800 ) = 700

Europe selling

Germany’s DAX broke medium-term support at 10700. Expect further medium-term support at 10000 but reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of 10000 would indicate a test of primary support at 9000.

DAX

* Target calculation: 10700 – ( 11800 – 10700 ) = 9600

The Footsie broke 6450, signaling a test of primary support at 6100. Reversal of 13-week Twiggs Money Flow below zero warns of (long-term) selling pressure. Breach of 6100 would offer a target of 5000**.

FTSE 100

* Target calculation: 6450 – ( 6800 – 6450 ) = 6100 **Long-term: 6000 – ( 7000 – 6000 ) = 5000

Asia

The Shanghai Composite reflects artificial, state-backed support at 3500. Declining 13-week Twiggs Money Flow warns of long-term selling pressure. Withdrawal of government support is unlikely, but breach of 3400/3500 would cause a nineties-style collapse in stock prices.

Shanghai Composite Index

* Target calculation: 4000 – ( 5000 – 4000 ) = 3000

Japan’s Nikkei 225 appears headed for a test of 19000. Breach would test primary support at 17000 but, given the scale of BOJ easing, respect is as likely and would indicate further consolidation between 19000 and 21000. Gradual decline of 13-week Twiggs Money Flow suggests medium-term selling pressure.

Nikkei 225 Index

* Target calculation: 21000 + ( 21000 – 19000 ) = 23000

India’s Sensex is holding up well, with rising 13-week Twiggs Money Flow signaling medium-term buying pressure. Breakout above 28500 is unlikely but would indicate another test of 30000. Decline below 27000 would warn of a primary down-trend; confirmed if there is follow-through below 26500.

SENSEX

Australia

Commodity-rich Australian stocks are exposed to China and emerging markets. The only protection is the floating exchange rate which is likely to adjust downward to absorb the shock — as it did during the 1997 Asian crisis. 13-Week Twiggs Money Flow below zero warns of (long-term) selling pressure on the ASX 200. Breach of support at 5150 is likely and would confirm a primary down-trend. Long-term target for the decline is 4400*. Respect of primary support is unlikely, but would indicate consolidation above the support level rather than a rally.

ASX 200

Posted on

Signs of recovery

A strong blue candle on the S&P 500 daily chart suggests that the latest correction is over. Penetration of the descending trendline would confirm. 21-Day Twiggs Money Flow recovery above zero would strengthen the signal. Recovery above 2120 would signal an advance to 2200*. Look for confirmation from the Dow Jones Industrial Average and Transport sector.

S&P 500 Index

* Target calculation: 2120 + ( 2120 – 2040 ) = 2200

CBOE Volatility Index (VIX) at 13 indicates low risk typical of a bull market.

S&P 500 VIX

Dow Jones Industrial Average also shows signs of a recovery. Reversal above 18000 would confirm the correction is over. Breakout above 18300 would offer a target of 19000*. 13-Week Twiggs Money Flow holding above zero continues to signal a healthy primary up-trend. Breach of support at 17500 is unlikely, but would warn of a correction to test primary support (and trendline) at 17000.

Dow Jones Industrial Average

* Target calculation: 18300 + ( 18300 – 17600 ) = 19000

Bellwether transport stock, Fedex surged to test primary resistance at $184. Rising 13-week Twiggs Money Flow indicates buying pressure. Breakout would offer a target of 204* — a positive sign for the economy.

Fedex

* Target calculation: 184 + ( 184 – 164 ) = 204

A long tail on Canada’s TSX 60 suggests strong support at 855. Recovery above the descending trendline would indicate the correction is over. A 13-week Twiggs Momentum trough above zero would signal continuation of the primary up-trend, while breakout above 900 would offer a long-term target of 1000*.

TSX 60 Index

* Target calculation: 900 + ( 900 – 800 ) = 1000

Europe

Germany’s DAX is testing support at 11000. Recovery above the descending trendline would indicate the correction is over. Declining 13-week Twiggs Money Flow continues to warn of selling pressure, but penetration of the descending trendline would also suggest that buyers are back in control. Reversal below 11000 is unlikely, but would offer a target of 10000*.

DAX

* Target calculation: 11000 – ( 12000 – 11000 ) = 10000

The Footsie is testing support at 6700/6750. Declining 13-week Twiggs Money Flow continues to warn of selling pressure, but penetration of the descending trendline would suggest the return of buyers. Breakout above 7100 would confirm a primary advance with a long-term target of 8000*. Reversal below 6700 is unlikely, but would warn of a primary down-trend.

FTSE 100

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

Asia

The Shanghai Composite broke 5000. The situation appears artificial, considering current economic data, and I believe the accelerating up-trend will lead to a blow-off.

Shanghai Composite Index

* Target calculation: 3500 + ( 3500 – 2500 ) = 4500

Retracement on Japan’s Nikkei 225 Index respected support at 20000, suggesting an advance to 22000*. Oscillation high above zero on 13-week Twiggs Momentum signals a strong primary up-trend.

Nikkei 225 Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex is testing primary support at 26500. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure, however, and recovery above zero would strengthen the signal. Respect of support and penetration of the descending trendline would suggest another primary advance. Breach of primary support is less likely, but would warn of a primary down-trend with support at 23000*.

SENSEX

* Target calculation: 26500 – ( 30000 – 26500 ) = 23000

Australia

“Unemployment has fallen to a one-year low of 6 per cent in May as an estimated 42,000 jobs were added to the economy last month.” ~ ABC News

The ASX 200 found support at 5500 after solid employment numbers and a rally in US markets. Recovery above 5650 and the descending trendline would indicate the correction is over, suggesting a fresh advance. Breakout above 6000 is still some way off but would offer a target of 6500*. Reversal below 5450 remains as likely, however, and would warn of a test of primary support at 5120/5150.

ASX 200

* Target calculation: 6000 + ( 6000 – 5500 ) = 6500

Moderate decline of 13-week Twiggs Money Flow indicates medium-term selling pressure, typical of a secondary correction not a reversal.

The Banking sector [XBAK] dragged the index lower over the last two months, but now faces solid support at its two-year low of 83. Twiggs Momentum (13-week) bearish divergence warns of a down-trend, but recovery above zero would suggest otherwise.

ASX 300 Banks


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The law locks up the man or woman
Who steals the goose off the common
But leaves the greater villain loose
Who steals the common from the goose.

~ Medieval English ditty from Jeffrey Sachs The Impunity Trap

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ASX breaks support

Australia

The ASX 200 broke through the band of support between 5650 and 5550, warning of a test of primary support at 5120. Declining 13-week Twiggs Money Flow indicates medium-term selling pressure, typical of a secondary correction not a reversal.

ASX 200

If we look at the two biggest sectors on a monthly chart, Metals & Mining has been in a down-trend since 2011 and is testing the lows of 2008. The Australian economy withstood the decline primarily because of low employment in the mining sector relative to its size.

ASX 300 Metals & Mining

Banks held up surprisingly well on the back of a resilient real estate market — I would call it a housing bubble because of the high average price to household income ratio. Pressure is mounting to improve bank capital ratios (especially after the Murray Inquiry) and curb aggressive lending. The long-awaited correction is under way and likely to find support between 82 and 84. The weight of the sector means the ASX 200 index is likely to follow.

ASX 300 Banks

Twiggs Momentum, however, shows a bearish divergence and has crossed below zero, warning of a (sector) reversal. Breach of primary support would strengthen the signal.

North America

The S&P 500 is ranging in a bullish narrow band between 2100 and 2120 on the daily chart. 21-Day Twiggs Money Flow holding above zero suggests moderate buying pressure. Upward breakout would signal an advance to 2200*, while reversal below 2100 would warn of a correction to 2040/2050. Look for confirmation from the Dow Jones Industrial Average.

S&P 500 Index

* Target calculation: 2120 + ( 2120 – 2040 ) = 2200

CBOE Volatility Index (VIX) indicates low risk typical of a bull market. The 63-day moving average holding below 20 reinforces the signal.

S&P 500 VIX

Dow Jones Industrial Average found support at 18000. Expect another test of resistance at 18300. Breakout would offer a target of 19000*. Reversal below 18000 is unlikely, but would warn of a correction to test the primary trendline and support at 17000.

Dow Jones Industrial Average

* Target calculation: 18300 + ( 18300 – 17600 ) = 19000

Canada’s TSX 60 continues to test resistance at 890. Breakout would confirm the end of the correction and indicate another test of long-term resistance at 900. 13-Week Twiggs Momentum holding above zero suggests a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.

TSX 60 Index

* Target calculation: 900 + ( 900 – 800 ) = 1000

Europe

Germany’s DAX retreated from resistance at 12000. Declining 13-week Twiggs Money Flow warns of further selling pressure. Reversal below 11000 is unlikely, but would offer a target of 10000*.

DAX

* Target calculation: 11000 – ( 12000 – 11000 ) = 10000

The Footsie is ranging in a bullish narrow band on the weekly chart. Gradual decline of 13-week Twiggs Money Flow is typical of a secondary correction or consolidation. Breakout above 7100 would confirm a primary advance, offering a long-term target of 8000*. Reversal below 6900 is unlikely, but would warn of a correction to 6700.

FTSE 100

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

Asia

The Shanghai Composite is testing 5000 after a brief retracement to 4500. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. I am wary of long-term prospects for the Chinese economy and believe the current accelerating up-trend is likely to end in a blow-off.

Shanghai Composite Index

* Target calculation: 3500 + ( 3500 – 2500 ) = 4500

Japan’s Nikkei 225 Index is headed for a target of 22000*, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure.

Nikkei 225 Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex is headed for a test of primary support at 26500. Succesive peaks below zero on 13-week Twiggs Money Flow warn of reversal to a primary down-trend. Breach of primary support would confirm. Recovery above 28000 is unlikely, but would signal another test of 30000.

SENSEX


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~ Walter Bagehot

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Stocks find support

Breakouts on the S&P 500 and in China and Japan, together with buying support across Europe and Asia, indicate a broad resurgence.

North American Stocks

The S&P 500 is retracing to test the new support level at 2120 after its recent breakout. Respect of support would confirm a further advance to 2200*. 21-Day Twiggs Money Flow is oscillating in a narrow range above the zero line, suggesting mild buying pressure. Upward breakout would signal another advance, while reversal below zero would warn of a correction.

S&P 500 Index

* Target calculation: 2120 + ( 2120 – 2040 ) = 2200

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

S&P 500 VIX

St Louis Fed Financial Stress index below -1.0 likewise displays low levels of stress in financial markets.

St Louis Fed Financial Stress Index

Dow Jones Industrial Average continues to test resistance at 18300. Buying pressure remains positive and breakout would offer a target of 19000*, confirming the S&P 500 signal. Reversal below 18000 is unlikely, but would warn of a correction to test the primary trendline and support at 17000.

Dow Jones Industrial Average

* Target calculation: 18300 + ( 18300 – 17600 ) = 19000

Canada’s TSX 60 is testing resitance at 890. Breakout would signal the end of the correction and another test of long-term resistance at 900. 13-Week Twiggs Momentum holding above zero continues to indicate a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.

TSX 60 Index

* Target calculation: 900 + ( 900 – 800 ) = 1000

Europe

Germany’s DAX broke its descending trendline, indicating another attempt at 12500. A 13-week Twiggs Money Flow trough above zero would confirm long-term buying pressure. Reversal below 11000 is unlikely.

DAX

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* Target calculation: 12500 + ( 12500 – 12000 ) = 13000

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Shallow retracement on the Footsie suggests buying pressure. Recovery of 13-week Twiggs Money Flow above its descending trendline strengthens the signal. Breakout above 7100 would confirm a primary advance. The long-term target is 8000*.

FTSE 100

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

Asia

The Shanghai Composite broke resistance at 4500, indicating continuation of its strong advance. 13-Week Twiggs Money Flow troughs high above zero reflect long-term buying pressure.

Shanghai Composite Index

* Target calculation: 3500 + ( 3500 – 2500 ) = 4500

Economic data, however, continues to warn of a slow-down.

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Japan’s Nikkei 225 Index broke resistance at 20000, suggesting an advance to 22000*. Recovery of 13-week Twiggs Money Flow above the descending trendline would strengthen the signal.

Nikkei 225 Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex respected support at 26500 and is now testing resistance at 28000. Breakout above 28000 and the descending trendline would signal another attempt at 30000. Recovery of 13-week Twiggs Money Flow above zero would strengthen the signal. Another (TMF) peak below zero is unlikely, but would warn of a primary down-trend.

SENSEX

Australia

The ASX 200 found support between 5650 and 5550, highlighted by the latest long-tailed candle. Recovery above 5750 would signal the correction is over and another test of 6000 is likely. Mild decline on 13-week Twiggs Money Flow indicates medium-term selling pressure — not a reversal. Breach of 5550 is unlikely, but would warn of a test of primary support at 5120.

ASX 200

* Target calculation: 6000 + ( 6000 – 5750 ) = 6250


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Teach us that wealth is not elegance; that profusion is not magnificence; and that splendour is not beauty. Teach us that taste is a talisman which can do greater wonders than the millions of the loanmonger. Teach us that to vie is not to rival, and to imitate not to invent. Teach us that pretension is a bore. Teach us that wit is excessively good-natured, and, like champagne, not only sparkles, but is sweet. Teach us the vulgarity of malignity. Teach us that envy spoils our complexions, and that anxiety destroys our figure.

~ Benjamin Disraeli, The Young Duke (1831)

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