Tag: FTSE 100

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Flying on one engine

Market direction is dominated at present by wild swings in the price of crude oil and other commodities (iron ore in Australia).

WTI Light Crude June 2016 Futures

The rally (WTI Light Crude June 2016 futures) may run as high as $44/barrel before retracing to test support. Primary support sits at $30 and a higher trough, following breach of the descending trendline, would suggest that a bottom is forming. But that is far from definite as Patrick Chovanec at Silvercrest points out:

….so far this year stock market sentiment has taken many of its cues from the price of oil. On any given day, if you knew which way oil prices moved, you probably could tell which way the stock market moved. While we believe this linkage fails to recognize the critical distinctions we have so often highlighted, it can’t be ignored in anticipating future market movements, at least in the near-term. The recent firming of oil prices reflects some important developments. After more than a year, we are finally seeing the initial signs of capitulation on the supply side: U.S. oil output has topped out and the most vulnerable OPEC members are agitating for cutbacks. Nevertheless, accumulated crude oil inventories remain at record high levels, which makes us wary concluding that the oil market has reached a hard bottom. While we think the oil price, and the producer industry, will gradually recover, we also think “consensus” expectations of a dramatic +20% gain in S&P 500 operating earnings this year, driven by a large and sudden rebound in the energy and materials sectors, continue to be overly optimistic. With this in mind, we are likely to see more sentiment-driven volatility in U.S. stock prices ahead, even as the U.S. economy continues on its path of slow growth.

Global

Dow Jones Global Index is testing resistance at 300. Respect is likely and reversal below 290 would warn of another decline. 13-Week Twiggs Momentum continues to flag a strong primary down-trend. Breach of 270 would confirm. Penetration of the descending trendline is unlikely but would warn that the down-trend is losing momentum and a bottom is forming.

Dow Jones Global Index

* Target calculation: 270 – ( 300 – 270 ) = 240

North America

“When you fly in a twin-engined aircraft and one engine cuts out, take comfort that the other engine will carry you to the scene of the crash.”

Whenever I see the market index gradually rolling over in a broad topping pattern I am reminded of this saying by my Irish friend Ollie Flynn (who did a lot of flying in light aircraft to remote locations). When there is no sudden shock, like Lehman Brothers’ collapse or LTCM, the market can remain undecided for a considerable time before rolling over into a hard down-trend.

The monthly chart of the S&P 500 is flying on one engine. Currently testing resistance at 2000, a peak at this level would strengthen the warning of a bear market. But even a peak at 2100 would keep the weight on the sell side. Follow-through below 1850 would confirm another decline. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure but the overall trend is down.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) below 20, suggests that (short-term) market risk is easing. Respect of this level (on the next spike) would strengthen the signal.

S&P 500 VIX

Canada’s TSX 60 penetrated the descending trendline after breaking resistance at 750, suggesting that a bottom is forming. Expect stubborn resistance at 800. Rising 13-week Twiggs Momentum is so far indicative of a secondary rally rather than reversal of the primary down-trend. Depth of the next trough will provide a better indication as to the likelihood of a reversal.

TSX 60 Index

* Target calculation: 700 – ( 750 – 700 ) = 650

Europe

Dow Jones Euro Stoxx 50 found resistance at 3050 but bullish divergence on 13-week Twiggs Money Flow suggests that a test of 3300 is likely. The primary trend remains down and a lower peak, followed by reversal below 3000, would warn of a decline to 2500*.

DJ Euro Stoxx 50

* Target calculation: 3000 – ( 3500 – 3000 ) = 2500

Germany’s DAX displays a similar pattern, testing resistance at 10000. Breakout would indicate an advance to 11000. Buying pressure on 13-week Twiggs Money Flow appears secondary and reversal below 9300 would warn of another decline.

DAX

* Target calculation: 9500 – ( 11000 – 9500 ) = 8000

The Footsie found resistance at 6250, but this may be short-term and we can only expect committed resistance at 6500. Reversal below 6000 is unlikely at present, but would warn of another test of 5500. Breach of the descending trendline suggests that a bottom is forming. A higher trough would favor a reversal. While a trough above zero on 13-week Twiggs Money Flow would strengthen the signal.

FTSE 100

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

Asia

The Shanghai Composite Index continues to test support at 2700, with no indication of the recent excitement in iron ore markets. The primary trend is down and likely to remain so.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index found resistance at 17000. Respect would warn of another test of 15000, while breakout would be likely to encounter stubborn resistance at 18000. 13-Week Twiggs Money Flow holding above zero is encouraging but I expect the primary down-trend is far from over.

Nikkei 225 Index

* Target calculation: 17000 – ( 20000 – 17500 ) = 15000

India’s Sensex is testing resistance at 25000. Rising 13-week Twiggs Money Flow reflects strong (medium-term) buying pressure. Breakout is likely and would test the upper trend channel at 26000. Respect of the trend channel remains likely and would warn of another test of 22500*.

SENSEX

* Target calculation: 25000 – ( 27500 – 25000 ) = 22500

Australia

The ASX 200 is testing resistance at 5150, with rising 13-week Twiggs Money Flow indicating (medium-term) buying pressure. This is a bear market and respect of the descending trendline is likely, warning of another decline. Reversal below 5000 would warn of another test of 4700, while breach of 4700 would offer a target of 4400*.

ASX 200

* Target calculation: 4800 – ( 5200 – 4800 ) = 4400

It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine—that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.

~ Jesse Livermore

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Risk of a global down-turn remains high

Stock markets in Asia and Europe have clearly tipped into a primary down-trend but the US remains tentative. The weight of the market is on the sell side and the risk of a global down-turn remains high.

Dow Jones Global Index found support at 270 and is rallying to test resistance at the former primary support levels of 290/300. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend. Respect of 300 is likely and reversal below 290 warn of another decline. Breach of 270 would confirm.

Dow Jones Global Index

* Target calculation: 290 – ( 320 – 290 ) = 260

Willem Buiter of Citigroup warns that further monetary easing faces “strongly diminishing returns”, while “hurdles for a major fiscal stimulus remain high”. To me, major infrastructure spending is the only way to avoid prolonged stagnation but resistance to further increases in public debt is high. The only answer is to focus on productive infrastructure assets that generate returns above the cost of servicing debt, improving the overall debt position rather than aggravating it.

North America

Dow Jones Industrial Average recovered above primary support at 16000 and is headed for a test of 17000. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Respect of 17000 is likely and would warn of continuation of the primary down-trend. Reversal below 16000 would confirm the signal, offering a target of 14000*.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The most bearish sign on the Dow chart is the lower peak, at 18000, in late 2015. Only recovery above this level would indicate that long-term selling pressure has eased.

The S&P 500 is similarly testing resistance at 1950. Breakout is quite possible but only a higher peak (above 2100) would indicate that selling pressure has eased. Declining 13-week Twiggs Momentum, below zero, continues to warn of a primary down-trend. Reversal below 1870 would confirm the primary down-trend, offering a target of 1700*.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) is testing ‘support’ at 20. Respect is likely and would confirm that market risk remains elevated.

S&P 500 VIX

Canada’s TSX 60 respected the descending trendline after breaking resistance at 750. Reversal below 750 would warn of another test of 680/700. Rising 13-week Twiggs Momentum is so far indicative of a bear rally rather than reversal of the primary down-trend.

TSX 60 Index

* Target calculation: 700 – ( 750 – 700 ) = 650

Europe

Dow Jones Euro Stoxx 50 is rallying to test resistance at the former primary support level of 3000. The large 13-week Twiggs Momentum peak below zero confirms a strong primary down-trend. Respect of resistance is not that important, but another lower peak, followed by reversal below 3000, would signal a decline to 2400*.

DJ Euro Stoxx 50

* Target calculation: 2700 – ( 3000 – 2700 ) = 2400

Germany’s DAX recovered above resistance at 9300/9500. Expect a test of 10000 but buying pressure on 13-week Twiggs Money Flow appears secondary and reversal below 9300 would signal another decline, with a (long-term) target of 7500*.

DAX

* Target calculation: 9500 – ( 11500 – 9500 ) = 7500

The Footsie recovered above 6000, and the declining trendline, but the primary trend is down. Buying pressure on 13-week Twiggs Money Flow appears secondary and reversal below 6000 would signal another decline, with a target of 5500*. The long-term target remains 5000*.

FTSE 100

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

Asia

The Shanghai Composite Index rallied off support at 2700 but respected resistance at 3000. Reversal below support would offer a target of 2400*. The primary trend is clearly down and likely to remain so for some time.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index is in a clear primary down-trend. Expect a test of 17000/18000 but respect of 18000 would warn of another test of 15000. Decline of 13-week Twiggs Money Flow below zero would flag more selling pressure.

Nikkei 225 Index

* Target calculation: 17000 – ( 20000 – 17000 ) = 14000

India’s Sensex primary down-trend is accelerating, with failed swings to the upper trend channel. Breach of 23000 would offer a short-term target of 22000*. Reversal of 13-week Twiggs Money Flow below zero would warn of more selling pressure.

SENSEX

* Target calculation: 23000 – ( 24000 – 23000 ) = 22000

Australia

The ASX 200 rally from 4700 respected resistance at 5000. Reversal below 4900 warns of another decline. Breach of support at 4700 would confirm. Divergence on 13-week Twiggs Money Flow indicates medium-term (secondary) buying pressure and reversal below zero would flag another decline. The primary trend is down and breach of 4700 would offer a target of 4400*. The long-term target remains 4000*.

ASX 200

* Target calculation: 4700 – ( 5000 – 4700 ) = 4400; 5000 – ( 6000 – 5000 ) = 4000

Banks are taking a hammering, with the Banks index (XBAK) in a clear down-trend. Retracement to test resistance at 78 is weak and another strong decline likely. Declining 13-week Twiggs Money Flow, below zero, reflects long-term selling pressure.

ASX 200 Financials

The most important rule is to play great defense, not great offense. Everyday I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum drawdown. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.

~ Paul Tudor Jones

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Risk of a global down-turn remains high

Stock markets in Asia and Europe have clearly tipped into a primary down-trend but the US remains tentative. The weight of the market is on the sell side and the risk of a global down-turn remains high.

Dow Jones Global Index found support at 270 and is rallying to test resistance at the former primary support levels of 290/300. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend. Respect of 300 is likely and reversal below 290 warn of another decline. Breach of 270 would confirm.

Dow Jones Global Index

* Target calculation: 290 – ( 320 – 290 ) = 260

Willem Buiter of Citigroup warns that further monetary easing faces “strongly diminishing returns”, while “hurdles for a major fiscal stimulus remain high”. To me, major infrastructure spending is the only way to avoid prolonged stagnation but resistance to further increases in public debt is high. The only answer is to focus on productive infrastructure assets that generate returns above the cost of servicing debt, improving the overall debt position rather than aggravating it.

North America

Dow Jones Industrial Average recovered above primary support at 16000 and is headed for a test of 17000. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Respect of 17000 is likely and would warn of continuation of the primary down-trend. Reversal below 16000 would confirm the signal, offering a target of 14000*.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The most bearish sign on the Dow chart is the lower peak, at 18000, in late 2015. Only recovery above this level would indicate that long-term selling pressure has eased.

The S&P 500 is similarly testing resistance at 1950. Breakout is quite possible but only a higher peak (above 2100) would indicate that selling pressure has eased. Declining 13-week Twiggs Momentum, below zero, continues to warn of a primary down-trend. Reversal below 1870 would confirm the primary down-trend, offering a target of 1700*.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) is testing ‘support’ at 20. Respect is likely and would confirm that market risk remains elevated.

S&P 500 VIX

Canada’s TSX 60 respected the descending trendline after breaking resistance at 750. Reversal below 750 would warn of another test of 680/700. Rising 13-week Twiggs Momentum is so far indicative of a bear rally rather than reversal of the primary down-trend.

TSX 60 Index

* Target calculation: 700 – ( 750 – 700 ) = 650

Europe

Dow Jones Euro Stoxx 50 is rallying to test resistance at the former primary support level of 3000. The large 13-week Twiggs Momentum peak below zero confirms a strong primary down-trend. Respect of resistance is not that important, but another lower peak, followed by reversal below 3000, would signal a decline to 2400*.

DJ Euro Stoxx 50

* Target calculation: 2700 – ( 3000 – 2700 ) = 2400

Germany’s DAX recovered above resistance at 9300/9500. Expect a test of 10000 but buying pressure on 13-week Twiggs Money Flow appears secondary and reversal below 9300 would signal another decline, with a (long-term) target of 7500*.

DAX

* Target calculation: 9500 – ( 11500 – 9500 ) = 7500

The Footsie recovered above 6000, and the declining trendline, but the primary trend is down. Buying pressure on 13-week Twiggs Money Flow appears secondary and reversal below 6000 would signal another decline, with a target of 5500*. The long-term target remains 5000*.

FTSE 100

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

Asia

The Shanghai Composite Index rallied off support at 2700 but respected resistance at 3000. Reversal below support would offer a target of 2400*. The primary trend is clearly down and likely to remain so for some time.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index is in a clear primary down-trend. Expect a test of 17000/18000 but respect of 18000 would warn of another test of 15000. Decline of 13-week Twiggs Money Flow below zero would flag more selling pressure.

Nikkei 225 Index

* Target calculation: 17000 – ( 20000 – 17000 ) = 14000

India’s Sensex primary down-trend is accelerating, with failed swings to the upper trend channel. Breach of 23000 would offer a short-term target of 22000*. Reversal of 13-week Twiggs Money Flow below zero would warn of more selling pressure.

SENSEX

* Target calculation: 23000 – ( 24000 – 23000 ) = 22000

Australia

The ASX 200 rally from 4700 respected resistance at 5000. Reversal below 4900 warns of another decline. Breach of support at 4700 would confirm. Divergence on 13-week Twiggs Money Flow indicates medium-term (secondary) buying pressure and reversal below zero would flag another decline. The primary trend is down and breach of 4700 would offer a target of 4400*. The long-term target remains 4000*.

ASX 200

* Target calculation: 4700 – ( 5000 – 4700 ) = 4400; 5000 – ( 6000 – 5000 ) = 4000

Banks are taking a hammering, with the Banks index (XBAK) in a clear down-trend. Retracement to test resistance at 78 is weak and another strong decline likely. Declining 13-week Twiggs Money Flow, below zero, reflects long-term selling pressure.

ASX 200 Financials

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One swallow does not a summer make

“One swallow does not a summer make, nor one fine day; similarly one day or brief time of happiness does not make a person entirely happy.”

~ Aristotle (384 BC – 322 BC)

Similarly, one brief rally does not make a bull market.

Dow Jones Global Index found support at 270 and is rallying to test resistance at the former primary support level of 290. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend. Breach of 270 would confirm another decline. Recovery above 290, on the other hand, would indicate a more gradual down-trend rather than a reversal; respect of the descending trendline at 300 would confirm.

Dow Jones Global Index

* Target calculation: 290 – ( 320 – 290 ) = 260

Dow Jones Industrial Average recovered above primary support at 16000, long tails on weekly candles reflected committed buying. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 16500 would signal a test of 17000. But respect of 17000 is likely and would warn of continuation of the primary down-trend. Breach of 16000 would confirm the signal, offering a target of 14000*.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 is similarly headed for a test of 1950. Rising 13-week Twiggs Money Flow again reflects medium-term buying pressure. Reversal of the primary trend is unlikely and breach of support at 1850 would confirm a decline to 1700*.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) is headed for another test of support at 20. Respect is likely and would confirm that risk remains elevated.

S&P 500 VIX

Canada’s TSX 60 broke resistance at 750. Rising 13-week Twiggs Momentum suggests that a bottom may be forming, but only another test of 700 would confirm this.

TSX 60 Index

* Target calculation: 700 – ( 750 – 700 ) = 650

Transport

Bellwether transport stock Fedex (FDX) found support at $120. Recovery above $140 would signal a test of $150 and the descending trendline. But the primary down-trend remains intact.

Fedex

Europe

Germany’s DAX is testing resistance at 9500. The rally may well follow-through to 10000 but buying pressure on 13-week Twiggs Momentum appears secondary and the primary down-trend is intact.

DAX

* Target calculation: 9500 – ( 11500 – 9500 ) = 7500

Deutsche Post AG (DPW.DE), Europe’s bellwether equivalent of Fedex, found support at € 20. A rally that respects resistance at € 23 would confirm a strong primary down-trend, while respect of € 25 and the descending trendline would indicate a more gradual decline. 13-Week Twiggs Money Flow declining below zero signals long-term selling pressure.

Deutsche Post AG

The Footsie recovered to 6000, but expect strong resistance at this level (and the declining trendline). 13-Week Twiggs Momentum oscillating below zero flags a primary down-trend. Long-term target for a decline remains 5000*.

FTSE 100

* Target calculation: 6000 – ( 7000 – 6000 ) = 5000

Asia

The Shanghai Composite Index found support at 2700. Expect a test of resistance at 3000, but the primary trend is clearly down and likely to remain so for some time.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index is retracing to test the new resistance level after breaking primary support at 17000. Respect is likely and would confirm the primary down-trend. Decline of 13-week Twiggs Money Flow below zero strengthens the bear signal.

Nikkei 225 Index

* Target calculation: 17 – ( 20 – 17 ) = 14

India’s Sensex broke the bottom border of its trend channel, testing support at 23000. The primary down-trend is accelerating. Respect of resistance at 24000 is likely and would warn of a test of 22000. Respect of resistance at 25000, on the other hand, would suggest a more gradual descent.

SENSEX

* Target calculation: 25000 – ( 27500 – 25000 ) = 22500

Australia

The ASX 200 retraced to test resistance at 5000 and the descending trendline. Respect of the latter is likely and would confirm the primary down-trend. Bullish divergence on 13-week Twiggs Money Flow indicates medium-term (secondary) buying pressure. The weight of the market remains on the sell (bear) side. Respect would indicate a test of support at 4600, but the long-term target remains 4000*.

ASX 200

* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000

Banks are taking a hammering, with the Finance sector ($XFJ) in a clear down-trend. Retracement to test resistance at 5700 is secondary. A rally that respects the descending trendline would suggest a decline to 5100*. Declining 13-week Twiggs Money Flow reflects long-term selling pressure.

ASX 200 Financials

* Target calculation: 5400 – ( 5700 – 5400 ) = 5100


More….

I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have.

~ Paul Tudor Jones

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Batten down the hatches

Batten down the hatches, the storm is here.

Nymex WTI Light Crude futures (March 2016) are testing support at $30 per barrel. There is no indication that this is the bottom and breach of $30 would be likely to test $20 per barrel.

Nymex WTI Light Crude March 2016 Futures

* Target calculation: 30 – ( 40 – 30 ) = 20

Long-term interest rates are falling, with 10-year Treasury yields headed for another test of primary support at 1.5 percent. Breach of 1.7 percent would confirm. The flight from stocks is driving up Treasuries (and yields lower).

10-year Treasury Yields

Flight to safety is (normally) synonymous with a strong Dollar, so the weakening Dollar Index is a surprise.

Dollar Index

China must be selling off Dollar reserves to support the Yuan and restore confidence.

USDCNY

Too late, I’m afraid. That horse has bolted. Loss of confidence in the Yuan is driving demand for gold, with the spot metal rallying to $1200 per ounce. Resistance at the former support level makes retracement likely, but a trough that respects $1100 or narrow consolidation below $1200 would suggest reversal (to an up-trend). Breach of $1200 would offer a target of $1300*.

Spot Gold

* Target calculation: 1200 + ( 1200 – 1100 ) = 1300

After forming a lower peak at 18000, Dow Jones Industrial Average is testing primary support at 16000. 13-Week Twiggs Momentum peak at zero warns of a primary down-trend. Breach of support would offer a target of 14000*.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 displays a similar pattern, testing primary support at 1850, with a 13-week Twiggs Momentum peak at zero. Breach of support would offer a target of 1500*.

S&P 500 Index

* Target calculation: 1850 – ( 2150 – 1850 ) = 1550

A monthly chart shows VIX rising for another test of 30. Oscillation between 20 and 30 flags elevated market risk.

CBOE Volatility Index

Australia’s ASX 200 retreated below primary support at 5000, signaling a primary down-trend. A 13-week Twiggs peak below zero already warns of a decline. Close below 4900 would confirm, offering a short-term target of 4600* and a long-term target of 4000*.

ASX 200 Index

* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000

Investors who plan to hold stocks through a possible down-turn should stop watching daily prices and listening to news reports. It will only weaken your resolve. I am comfortable with holding stocks with strong dividend streams, but wary of holding growth stocks as they normally suffer the biggest losses.

For traders this is a time of dangerous opportunity. Either shorting sectors likely to be worst hit or waiting for opportunities to buy gold stocks.

Northern Star (NST)

Only when the tide goes out do you discover who’s been swimming naked.

~ Warren Buffett

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Bears threaten US rally

Rallies on the Dow and S&P 500 reflect a more positive outlook for the US economy. But the FTSE 100 has followed China’s Shanghai Composite and India’s SENSEX into bear territory, while Germany’s DAX, Japan’s Nikkei 225 and Australia’s ASX 200 threaten key support levels. There is very little to cheer about at present.

Dow Jones Global Index is testing resistance at the former primary support level of 290. Respect is likely and breach of 270 would confirm another decline. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend.

Dow Jones Global Index

* Target calculation: 290 – ( 320 – 290 ) = 260

Dow Jones Industrial Average recovered above primary support at 16000 but respect of 17000 is likely and would warn of another decline. Breach of 16000 offers a target of 14000*. 13-Week Twiggs Money Flow oscillating around zero indicates uncertainty.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 recovered above 1900, while rising 21-day Twiggs Money Flow indicates short-/medium-term buying pressure. Expect a test of 2000 but breakout is unlikely. Breach of support at 1900 would signal another decline, with a (medium-term) target of 1700*.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) continues to range between 20 and 30 reflecting hesitancy — and the potential to react quickly to bad news.

S&P 500 VIX

Canada’s TSX 60 also retraced to test resistance at 750. Respect is likely and breach of 700 would offer a target of 650*. Declining 13-week Twiggs Momentum peaks below zero indicate a strong primary down-trend.

TSX 60 Index

* Target calculation: 700 – ( 750 – 700 ) = 650

Europe

Germany’s DAX is testing primary support at 9500. Peaks below zero on 13-week Twiggs Momentum warn of a primary down-trend. Follow-through below 9300 would confirm.

DAX

* Target calculation: 9500 – ( 11500 – 9500 ) = 7500

The Footsie retreated below 6000, signaling a primary down-trend. 13-Week Twiggs Momentum peaks below zero further strengthen the signal. Long-term target for a decline is 5000*.

FTSE 100

* Target calculation: 6000 – ( 7000 – 6000 ) = 5000

Asia

Support has given way on the Shanghai Composite Index, strengthening the primary down-trend signaled last August when 13-week Twiggs Momentum crossed below zero. Target for the decline is 2400*.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index is testing primary support at 17000. Breach is likely and would confirm the primary down-trend signaled by 13-week Twiggs Momentum below zero.

Nikkei 225 Index

* Target calculation: 94 – ( 106 – 94 ) = 82

Two failed swings on India’s Sensex (failing to reach the upper trend channel) warn of increasing selling pressure. Declining 13-week Twiggs Momentum peaks below zero confirm this. Follow-through below 24000 would offer a target of 22500*.

SENSEX

* Target calculation: 25000 – ( 27500 – 25000 ) = 22500

Australia

The ASX 200 staged a short rally today but sentiment remains bearish and respect of the recent high at 5050 would warn of another decline. Bullish divergence on 21-day Twiggs Money Flow indicates medium-term buying pressure but the weight of global bear markets is likely to sap any enthusiasm. Reversal below 4850 would offer a medium-term target of 4650*, or 4000* in the long-term.

ASX 200

* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000

The largest sector, Banks, is already in a primary down-trend, having been singled out for particular attention by the bears. Breach of support at 7500/7600 would warn of a decline to 6600*.

ASX 300 Banks

* Target calculation: 7600 – ( 8600 – 7600 ) = 6600

Markets are fundamentally volatile. No way around it. Your problem is not in the math. There is no math to get you out of having to experience uncertainty.

~ Ed Seykota

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Bears threaten US rally

Rallies on the Dow and S&P 500 reflect a more positive outlook for the US economy. But the FTSE 100 has followed China’s Shanghai Composite and India’s SENSEX into bear territory, while Germany’s DAX, Japan’s Nikkei 225 and Australia’s ASX 200 threaten key support levels. There is very little to cheer about at present.

Dow Jones Global Index is testing resistance at the former primary support level of 290. Respect is likely and breach of 270 would confirm another decline. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend.

Dow Jones Global Index

* Target calculation: 290 – ( 320 – 290 ) = 260

Dow Jones Industrial Average recovered above primary support at 16000 but respect of 17000 is likely and would warn of another decline. Breach of 16000 ofers a target of 14000*. 13-Week Twiggs Money Flow oscillating around zero indicates uncertainty.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 recovered above 1900, while rising 21-day Twiggs Money Flow indicates short-/medium-term buying pressure. Expect a test of 2000 but breakout is unlikely. Breach of support at 1900 would signal another decline, with a (medium-term) target of 1700*.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) continues to range between 20 and 30 reflecting hesitancy — and the potential to react quickly to bad news.

S&P 500 VIX

Canada’s TSX 60 also retraced to test resistance at 750. Respect is likely and breach of 700 would offer a target of 650*. Declining 13-week Twiggs Momentum peaks below zero indicate a strong primary down-trend.

TSX 60 Index

* Target calculation: 700 – ( 750 – 700 ) = 650

Europe

Germany’s DAX is testing primary support at 9500. Peaks below zero on 13-week Twiggs Momentum warn of a primary down-trend. Follow-through below 9300 would confirm.

DAX

* Target calculation: 9500 – ( 11500 – 9500 ) = 7500

The Footsie retreated below 6000, signaling a primary down-trend. 13-Week Twiggs Momentum peaks below zero further strengthen the signal. Long-term target for a decline is 5000*.

FTSE 100

* Target calculation: 6000 – ( 7000 – 6000 ) = 5000

Asia

Support has given way on the Shanghai Composite Index, strengthening the primary down-trend signaled last August when 13-week Twiggs Momentum crossed below zero. Target for the decline is 2400*.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index is testing primary support at 17000. Breach is likely and would confirm the primary down-trend signaled by 13-week Twiggs Momentum below zero.

Nikkei 225 Index

* Target calculation: 94 – ( 106 – 94 ) = 82

Two failed swings on India’s Sensex (failing to reach the upper trend channel) warn of increasing selling pressure. Declining 13-week Twiggs Momentum peaks below zero confirm this. Follow-through below 24000 would offer a target of 22500*.

SENSEX

* Target calculation: 25000 – ( 27500 – 25000 ) = 22500

Australia

The ASX 200 staged a short rally today but sentiment remains bearish and respect of the recent high at 5050 would warn of another decline. Bullish divergence on 21-day Twiggs Money Flow indicates medium-term buying pressure but the weight of global bear markets is likely to sap any enthusiasm. Reversal below 4850 would offer a medium-term target of 4650*, or 4000* in the long-term.

ASX 200

* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000

The largest sector, Banks, is already in a primary down-trend, having been singled out for particular attention by the bears. Breach of support at 7500/7600 would warn of a decline to 6600*.

ASX 300 Banks

* Target calculation: 7600 – ( 8600 – 7600 ) = 6600

Markets are fundamentally volatile. No way around it. Your problem is not in the math. There is no math to get you out of having to experience uncertainty.

~ Ed Seykota

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Brief retracement

My newsletters on December 10th and January 14th warned of the approaching storm across global markets. Last week the Dow Jones Industrial Average broke support at 16000, signaling a primary down-trend. Buyers remain present in numbers, however, and this week we have observed a test of new resistance levels. But the weight of the market has shifted to the sell side and a successful breakout is unlikely.

Dow Jones Global Index retraced to test resistance at 290. Respect is likely and would suggest another decline. 13-Week Twiggs Momentum below zero continues to indicate a primary down-trend.

Dow Jones Global Index

* Target calculation: 290 – ( 320 – 290 ) = 260

Dow Jones Industrial Average recovered above 16000 but follow-through above the previous week’s high at 16600 is unlikely. Reversal below 16000 would signal another decline, with a target of 14000*. A 13-week Twiggs Money Flow peak below zero would warn of long-term selling pressure.

Dow Jones Industrial Average

* Target calculation: 16000 – ( 18000 – 16000 ) = 14000

The S&P 500 is consolidating around 1900. Rising 21-day Twiggs Money Flow indicates short-term buying pressure. Upward breakout is unlikely and reversal below 1860 would signal another decline, with a (medium-term) target of 1700*.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) oscillating between 20 and 30 reflects a “vigilant” market that would react quickly to bad news. A prolonged period of stability would be needed to restore calm.

S&P 500 VIX

Canada’s TSX 60 is retracing to test resistance at 750. The primary down-trend, which commenced with breach of 800, is well under way and respect of resistance is likely. Breach of 700 would indicate another decline, with a target of 600*.

TSX 60 Index

* Target calculation: 700 – ( 800 – 700 ) = 600

Europe

Dow Jones Germany Index is retracing to test resistance at 350. Respect is likely and reversal below 325 would confirm the primary down-trend signaled by 13-week Twiggs Momentum below zero.

Dow Jones Germany Index

* Target calculation: 330 – ( 390 – 330 ) = 270

The Footsie is retracing to test resistance at 6000. Respect would further strengthen the primary down-trend signaled by 13-week Twiggs Momentum below zero. Target for another decline is 5000*.

FTSE 100

* Target calculation: 6000 – ( 7000 – 6000 ) = 5000

Asia

Support has given way on the Dow Jones Shanghai Index, strengthening the primary down-trend signaled last August when 13-week Twiggs Momentum crossed below zero. Target for the decline is 300*.

Dow Jones Shanghai Index

* Target calculation: 400 – ( 500 – 400 ) = 300

Dow Jones Japan Index continues to test primary support at 90. Breach would confirm the primary down-trend signaled by 13-week Twiggs Momentum below zero.

Dow Jones Japan Index

* Target calculation: 94 – ( 106 – 94 ) = 82

India’s Sensex is testing the bottom of the trend channel at 24000. Expect retracement to test long-term resistance at 26000. Respect is likely and would suggest another test of the lower channel border.

SENSEX

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

Australia

Having breached primary support at 5000, the ASX 200 has shown surprising resilience, retracing to test the new resistance level. Bullish divergence on 21-day Twiggs Money Flow indicates medium-term buying pressure. But the weight of the global bear market is likely to ensure that any attempted rally fails and reversal below 4900 would confirm another decline. Target for the decline is 4600 (medium-term), or 4000* in the long-term.

ASX 200

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. It doesn’t go into explanations. The reason for what a certain stock does today may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now – not tomorrow. The reason can wait. But you must act instantly or be left.

~ Jesse Livermore

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China storm

My newsletter on December 10th, warned of The Gathering Storm across global markets. A month later, concern over China is sapping investor confidence. Several exchanges signal a primary down-trend and more are approaching the tipping point.

The Dow Jones Global Index broke primary support at 300, warning of a decline to 260*. Follow-through below 290 confirms the signal — and a primary down-trend. A 6-month Twiggs Momentum peak below zero strengthens the signal.

DJ Global Index

* Target calculation: 300 – ( 340 – 300 ) = 260

North America

Declining profit margins proved a reliable indicator of recent recessions. The 10% year-on-year decline in Q3 is an early warning. Data for Q4 2015 is not yet available. A year-on-year fall of 20% would suggest that recession is imminent.

Profit Margins

The S&P 500 is headed for a test of primary support at 1870. Declining 21-day Twiggs Money Flow below zero warns of selling pressure. Breach of 1870 would confirm a primary down-trend. Respect of support is unlikely but would suggest another bear rally.

S&P 500 Index

* Target calculation: 1900 – ( 2100 – 1900 ) = 1700

CBOE Volatility Index (VIX) is rising. Breakout above 30 would warn of elevated risk.

S&P 500 VIX

Canada’s TSX 60 broke support at 750, confirming a primary down-trend. 13-Week Twiggs Momentum peaks below zero strengthen the bear signal. Target for the decline is 700*.

TSX 60 Index

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

Europe

Germany’s DAX is headed for a test of primary support at 9400. Reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of support would signal a decline to 7500*.

DAX

* Target calculation: 9500 – ( 11500 – 9500 ) = 7500

The Footsie again breached 6000, warning of a primary down-trend. Declining 13-week Twiggs Money Flow below zero strengthens the signal. Follow-through below 5800 would confirm. Target for the decline is 5000*.

FTSE 100

* Target calculation: 6000 – ( 7000 – 6000 ) = 5000

Asia

The Shanghai Composite Index crossed below 3000 for the first time since August. Declining 21-day Twiggs Money Flow warns of medium-term selling pressure. Follow-through below 2900 would confirm another (primary) decline, with a target of 2400*.

Dow Jones Shanghai Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 is back testing primary support at 17000. The peak at zero on 13-week Twiggs Momentum warns of a primary down-trend. Breach of support would confirm.

Nikkei 225 Index

* Target calculation: 17500 – ( 20000 – 17500 ) = 15000

India’s Sensex breached primary support at 25000. 13-Week Twiggs Money Flow peaks below zero indicate a primary down-trend. Expect retracement to test the new resistance level at 25000 but respect is likely. Target for the decline is 23000*.

SENSEX

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

Australia

The ASX 200 breached primary support at 5000, signaling another decline. Follow-through below 4900 would confirm. Declining 13-week Twiggs Money Flow below zero indicates selling pressure. Target for a decline is 4600 (medium-term), or 4000* in the long-term.

ASX 200

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

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The gathering storm

Last week I touched on the bearish divergence on the Nasdaq 100, warning of a reversal. This week we look at bearish signs on the Dow Jones Global Index, transport bellwether Fedex and a number of major indices outside the US and Japan.

First, the Dow Jones Global Index. After a failed breakout in May, the index broke through primary support at 300, warning of a down-trend. The subsequent rally allayed fears but ran into resistance at 320. Reversal below 300 would strengthen the bear signal, while a 13-week Twiggs Momentum peak below zero (and or breach of 290) would confirm the (primary) down-trend.

DJ Global Index

* Target calculation: 300 – ( 335 – 300 ) = 265

North America

The S&P 500 is headed for a test of medium-term support at 2000. Peaks on 13-week Twiggs Money Flow are healthy, but reversal (of the index) below support would put us back in bear territory. Breach of primary support at 1870 is unlikely but would confirm a primary down-trend.

S&P 500 Index

* Target calculation: 2130 + ( 2130 – 1870 ) = 2390

CBOE Volatility Index (VIX) below 20 indicates market risk is subdued, but some macro indicators remain elevated. Breakout above 20 would warn that risk is again climbing.

S&P 500 VIX

Transport bellwether Fedex is falling. Breach of $140 would signal a decline to $115*. Reversal of 13-week Twiggs Money Flow below zero warns of strong selling pressure.

Fedex

* Target calculation: 140 – ( 165 – 140 ) = 115

Canada’s TSX 60 broke support at 765, confirming a primary down-trend. 13-Week Twiggs Momentum peaks below zero strengthen the bear signal. Target for the decline is 700*.

TSX 60 Index

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

Europe

Germany’s DAX retreated below 11000, warning of a correction to test 10000. Declining 13-week Twiggs Money Flow peaks warn of selling pressure, but breach of primary support at 9300 remains unlikely.

DAX

The Footsie broke medium-term support at 6250, while 13-week Twiggs Money Flow below zero warns of strong selling pressure. Breach of 6000 is now likely and would signal a primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index is again testing support at 3500. Reversal below 3300 would confirm another assault on primary support at 3000. I remain wary of China because of the high Debt to GDP ratio, the need to wean itself off investment stimulus, and impending rate rises in the US which could encourage further capital outflows. The PBOC has massive foreign currency reserves which act as a buffer, but these have already been depleted by half a trillion Dollars.

Dow Jones Shanghai Index

Japan’s Nikkei 225 is retracing for another test of medium-term support at 19000. Respect would confirm an advance to 21000. Breach of 19000 is less likely, but Japan is not impervious to an emerging markets crisis. Collapse of Asian markets would damage exports.

Nikkei 225 Index

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

India’s Sensex is testing 25000. Decline of 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of support is likely and would confirm a primary down-trend with an initial target of 23000*.

SENSEX

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

Australia

The ASX 200 is testing primary support at 5000. Reversal of 13-week Twiggs Money Flow below zero indicates strong selling pressure. Breach is likely and would signal a primary down-trend.

ASX 200

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

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