The S&P 500 broke through the lower border of the broadening wedge and the secondary trendline at 1965, indicating a correction. Expect support at 1900. Decline of 21-day Twiggs Money Flow below zero would strengthen the signal, while recovery above 25% (September high) would suggest that buyers are back in control.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) is close to 17%, but the low level continues to suggest a bull market.
We are now at the September quarter-end, normally a volatile time for stocks. Expect selling pressure to increase over the next few weeks as investment managers sell off poor-performing stocks. Increased cash balances then enable them to take advantage of new opportunities as they present themselves. If the fundamental under-pinning of the market is sound, the market is likely to undergo a minor dip before resuming its advance. If not, and there are serious flaws, the sell-off could turn into a rout — as in 1987 and 2007.
At present the market appears sound, with none of our market indicators flagging elevated risk, and the bull market is likely to continue.
Bears cite the potential for an increase in US interest rates as a major threat to the US economy. The track record for the last 15 years suggests otherwise. The graph below compares percentage change in 10-year Treasury yields to the Wilshire 5000 Total Market Index (divided by 20 for purposes of comparison). The two tend to rise and fall in sync, with a 20% to 40% rise in the index accompanying a 1% increase in yields.
The Fed tends to be conservative about raising interest rates (“doves” outnumber “hawks”) and is unlikely to raise rates until there is solid evidence of a recovery. So a rise in interest rates is more likely to be followed by a surge in stocks than a fall.
The S&P 500 found significant support at 1965, the lower border of the broadening wedge. Monday’s long tail flags (short-term) buying pressure. Follow-through above 1990 would suggest a rally to test the upper border. Breach of 1965, however would indicate another correction. Decline of 21-day Twiggs Money Flow below zero would confirm, while recovery above its September high would suggest that buyers are back in control.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) is rising, but the low level continues to suggest a bull market.
Dow Jones Industrial Average found support at 16950 on the weekly chart. Long tails again flag buying pressure. Recovery above 17150 would suggest another advance, while follow-through above 17350 would confirm. Breach of support at 16950 is unlikely, but would warn of a correction. 13-Week Twiggs Money Flow reflects some hesitancy, but the long-term picture is bullish.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
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.
* 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.
* 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.
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.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.
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.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
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.
* 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.
* 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.
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.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.
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.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
We are now approaching the September quarter-end, normally a volatile time for stocks. Investment managers tend to re-balance their portfolios after month-end, selling off poor performers and increasing cash balances to later take advantage of new opportunities. The result is that stocks tend to dip in October. If the fundamental under-pinning of the market is strong, they soon recover and continue on its merry way. But if there are serious flaws, the sell-off can turn into a rout — as in 1987 and 2007.
At present the market outlook appears sound and the bull market is likely to continue. I often use transport stock Fedex as a bellwether for the US economy. If the economy is robust, you can expect Fedex to display a solid up-trend. If weak, Fedex tends to lead the market lower. In November 2007 for example, on the monthly chart below, Fedex signaled a bear market several months ahead of the major indices. The present situation is quite the opposite, with the Fedex in a strong bull-trend, having recently respected support at $145. A 13-week Twiggs Money Flow trough above zero also suggests buying pressure. Economic activity is clearly improving.
* Target calculation: 145 + ( 145 – 130 ) = 160
The S&P 500 break above 2010 proved to be a false break, with the market headed for a re-test of support at 1980. Breach would indicate another correction. Declining 21-day Twiggs Money Flow now indicates medium-term selling pressure; a fall below zero would warn of a primary down-trend.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains low, however, suggesting continuation of the bull market.
Dow Jones Industrial Average also retreated, testing its new support level at 17150. Reversal below 16950 would indicate a correction, while respect would suggest another advance. Declining 21-day Twiggs Money Flow also suggests medium-term selling pressure.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
My conclusion is that the bull market is sound, but likely to encounter some turbulence over the quarter-end. There may be a secondary correction, but respect of recent support levels would indicate a fresh advance.
Weekly highlights:
Dow Jones Europe Index is retracing after a weak rally that reached 335. Failure of support at 320 would signal a primary down-trend. Follow-through below 315 would confirm. A 13-week Twiggs Momentum peak below zero strengthens the bear signal.
* Target calculation: 320 – ( 340 – 320 ) = 300
Dow Jones Asia Index is testing primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Bearish divergence on 13-week Twiggs Momentum warns of a test of 3100. Breach of 3200 would signal a primary down-trend, while follow-through below 3100 would confirm.
* Target calculation: 3100 + ( 3100 – 2800 ) = 3400
The S&P 500 recovered above 2000 to signal a fresh advance. Follow-through above 2010 confirms a target of 2100*. Reversal below 1980 is unlikely. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains low, typical of a bull market.
The ASX 200 correction found support at 5300/5350. But 13-week Twiggs Money Flow below zero, after a long-term bearish divergence, warns of further weakness. Breach of 5300 would indicate a test of 5000. Recovery above 5550 is unlikely, but would suggest a fresh advance.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
Weekly highlights:
Dow Jones Europe Index is retracing after a weak rally that reached 335. Failure of support at 320 would signal a primary down-trend. Follow-through below 315 would confirm. A 13-week Twiggs Momentum peak below zero strengthens the bear signal.
* Target calculation: 320 – ( 340 – 320 ) = 300
Dow Jones Asia Index is testing primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Bearish divergence on 13-week Twiggs Momentum warns of a test of 3100. Breach of 3200 would signal a primary down-trend, while follow-through below 3100 would confirm.
* Target calculation: 3100 + ( 3100 – 2800 ) = 3400
The S&P 500 recovered above 2000 to signal a fresh advance. Follow-through above 2010 confirms a target of 2100*. Reversal below 1980 is unlikely. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains low, typical of a bull market.
The ASX 200 correction found support at 5300/5350. But 13-week Twiggs Money Flow below zero, after a long-term bearish divergence, warns of further weakness. Breach of 5300 would indicate a test of 5000. Recovery above 5550 is unlikely, but would suggest a fresh advance.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
Dow Jones Industrial Average followed through above 17150, confirming a primary advance to 18000*. Rising 21-day Twiggs Money Flow suggests buying pressure. Reversal below support at 16950 is most unlikely, but would warn of a correction.
* Target calculation: 17150 + ( 17150 – 16350 ) = 17950
The S&P 500 similarly followed through above 2010, confirming a primary advance with a target of 2070*. Reversal below support at 1980 is most unlikely, but would warn of a correction.
* Target calculation: 1990 + ( 1990 – 1910 ) = 2070
CBOE Volatility Index (VIX) is now back at 12, continuing to indicate low risk typical of a bull market.
The S&P 500 bounced off support at 1980/1985 and is once again testing resistance at 2000. Follow-through above 2010 would confirm a primary advance, targeting 2100*. Failure of short-term support at 1980 remains unlikely, but would warn of a correction to 1950.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) retreated below 13, indicating low risk typical of a bull market.
Dow Jones Industrial Average breakout above 17150 would strengthen the bull signal, offering a target of 17500*. Rising 21-day Twiggs Money Flow suggests buying pressure. Reversal below support at 16950 is unlikely, but would warn of a correction.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
Dow Jones Industrial Average found short-term support at 16950/17000. Follow-through above 17050 would indicate another attempt at 17150. And breakout above 17150 would offer a target of 17500*. Recovery of 21-day Twiggs Money Flow above 20% would indicate buying pressure. Reversal below support at 16950 is unlikely, but would test the rising trendline around 16700.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
The S&P 500 is testing support at 1980/1985. Monday’s long tail suggests short-term buying pressure; strengthened if 21-day Twiggs Money Flow starts to rise. Recovery above 2000 would indicate another rally. Follow-through above 2010 would signal an advance to 2100*. Failure of short-term support at 1980 is unlikely, but would warn of a correction to 1950.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) readings remain low, typical of a bull market.
The Nasdaq 100 is retracing to test its new support level at 4000. Respect of support is likely and would suggest an advance to 4250*. Failure of support at 4000, however, would warn of a correction to the primary trendline, around 3850. Completion of another 13-week Twiggs Money Flow trough above zero would strengthen the bull signal.
* Target calculation: 4000 + ( 4000 – 3750 ) = 4250
