primary support Archives - the patient investor

June 4, 2012

Hong Kong, India and Singapore

Dow Jones Hong Kong Index is headed for primary support at 360. Failure would confirm the primary down-trend signaled by 63-day Twiggs Momentum below zero.

Straits Times Index

India’s Sensex is testing support at 16000/15800. Failure would mean another test of primary support at 15000/15200. Reversal of 13-week Twiggs Money Flow below zero indicates selling pressure. Failure of primary support would offer a target of 12000*.

BSE Sensex Index

* Target calculation: 15 – ( 18 − 15 ) = 12

Dow Jones Singapore Index broke medium-term support at 222, indicating a test of primary support at 208/210. Reversal of 13-week Twiggs Money Flow below zero indicates selling pressure. Failure of primary support would offer a target of 190*.

Straits Times Index

* Target calculation: 210 – ( 230 − 210 ) = 190

May 31, 2012

India & Singapore

The BSE Sensex found medium-term support at 16000/15800 but reversal of 13-week Twiggs Money Flow below zero warns of further selling pressure. Expect another test of primary support at 15000/15200. Failure would offer a target of 12000*.

BSE Sensex Index

* Target calculation: 15 – ( 18 − 15 ) = 12

With almost half of foreign bank funding sourced from Europe, India is experiencing significant tightening of external finance and hence domestic investment.

Singapore’s Straits Times Index is testing medium-term support at 2750. Failure would test primary support at 2600. Reversal of 63-day Twiggs Momentum below zero warns of a strong primary down-trend. Recovery above 2900 is unlikely but would indicate continuation of the primary up-trend.

Straits Times Index

* Target calculation: 2600 – ( 2900 − 2600 ) = 2300

December 10, 2011

S&P 500 hovers near tipping point

The S&P 500 index recovered above medium-term support at 1220/1250, with a short surge in buying pressure, but the situation remains precarious. Breakout above 1300 would indicate that the threat of another bear market has passed, but reversal below 1160 remains as likely — and would warn of another test of primary support at 1100/1080.

S&P 500 Index

The situation is similar to the attempted recovery above 1400 [now here] in 2008. Reversal below medium-term support [1400] in that case tipped us into a bear market.

S&P 500 Index

November 23, 2011

Europe warns of another decline

Dow Jones Europe Index is headed for a test of the band of support between 200 and 205. A 63-day Twiggs Momentum peak below zero would warn of a strong primary down-trend. Failure of primary support would offer a target of 150*.

Dow Jones Europe Index

* Target calculation: 205 – ( 260 – 205 ) = 150

November 21, 2011

India & Singapore

The BSE Sensex is headed for a test of primary support at 16000/15800. Reversal of 13-week Twiggs Money Flow below zero warns of further selling pressure. Failure of primary support would offer a target of 14000*.

BSE Sensex Index

* Target calculation: 16 – ( 18 − 16 ) = 14

Westpac’s monthly Fearful Symmetry chronicle on the Indian economy makes an interesting point:

“The reality is that while India is an internally focused and investment-led economy — thus producing a low-beta response to swings in global growth — the financing of investment, at the margin, must come from abroad, so it is highly vulnerable to downswings that incorporate or are driven by negative financial shocks. Put simply, in India a slowdown in the global economy is felt principally through the hardening of its external financing constraint. That is in contrast to the majority of its East Asian (surplus) neighbours, where global shocks are primarily transmitted via an export-led deceleration in aggregate demand, or its non-China BRIC peers, where swings in commodity prices are the key variable.”

Given that almost half of foreign bank funding is sourced from Europe, expect a significant tightening of external finance and hence domestic investment.

Singapore’s Straits Times Index is headed for medium-term support at 2700. Failure of 2700 would indicate a test of primary support at 2500. Reversal of 63-day Twiggs Momentum deep below zero warns of a strong primary down-trend.

Straits Times Index

* Target calculation: 2500 – ( 2900 − 2500 ) = 2100

November 20, 2011

Europe: breach of medium-term support would signal decline

Italy’s MIB index is testing medium-term support at 15000 on the weekly chart. Failure — and respect of the descending trendline — would warn of another decline, with a target of 9000*. Breach of primary support at 13000 would confirm.

FTSE MIB Index

* Target calculation: 13 − ( 17 − 13 ) = 9

France’s CAC-40 index is similarly testing support at 3000. Breach of support would warn of another decline — as would reversal of 13-week Twiggs Money Flow below zero. Failure of primary support at 2700 would offer a target of 2000*.

CAC-40 Index

* Target calculation: 2700 – ( 3400 − 2700 ) = 2000

The DAX is also testing medium-term support. Reversal below 5600 would warn of another test of primary support at 5000. Failure of 5000 would offer a target of 3600*.

DAX Index

* Target calculation: 5000 – ( 6400 − 5000 ) = 3600

Even the FTSE 100 index is testing medium-term support. 13-Week Twiggs Money Flow looks stronger than its European neighbors, but reversal below zero would warn of a further decline. Breach of medium-term support at 5350 would warn of a test of primary support at 4800.

FTSE 100 Index

* Target calculation: 4800 – ( 5600 − 4800 ) = 4000

November 20, 2011

TSX 60 warns of another decline

Canada’s TSX 60 index broke medium-term support — at 680 on the weekly chart below. Respect of the descending trendline suggests another decline. Failure of primary support at 650 would confirm. 63-Day Twiggs Momentum deep below zero also indicates a strong primary down-trend. A conservative target for the decline would be 580*.

TSX 60 Index

* Target calculation: 650 − ( 720 − 650 ) = 580

November 18, 2011

S&P 500 approaches tipping point

The S&P 500 index broke downwards from its recent pennant, counter to normal bullish expectations, and is testing medium-term support at 1200. Failure of support would test primary support at 1100. Respect of support is less likely, but would suggest a rally to 1300. A 21-day Twiggs Money Flow cross below the zero line would indicate rising selling pressure.

S&P 500 Index

The weekly chart better illustrates the breakout above 1200 followed by several tests of the new support level. Respect of the zero line by 63-day Twiggs Momentum would be a strong bear signal, warning of continuation of the primary down-trend — as would failure of support at 1200.

S&P 500 Index Weekly Chart

* Target calculation: 1100 – ( 1300 – 1100 ) = 900

Comparing to the 2008 weekly chart, there was a similar break below 1400 in January followed by several months of indecision before a false recovery above 1400 in May. Reversal below 1400 precipitated a major sell-off, with the index falling 50% over the next 9 months. If we look (above) at the current chart, there was a similar fall below 1250, several months of indecision before “recovery” above 1200/1250. Reversal below 1200 would provide a similar bear warning to 2008 — as would a 63-day Twiggs Momentum peak below zero.

S&P 500 Index 2008 Weekly Chart

There is no guarantee that stocks will follow the same path as in 2008, but reversal below 1200 would greatly increase the probability of another primary decline — with a target of 900*.

November 17, 2011

Silver reverts to mean

Spot silver has reverted to its “mean” — the spot gold price plotted against weekly silver. Reaction to the GFC was far more severe than gold in 2008 as industrial demand for silver slowed. Breakout above $20/ounce in 2010, however, ignited a steep ascent to $50. The inevitable blow-off followed and silver has now reverted to its 2007 ratio to the gold price. However, Newton’s Third Law of Motion — for every action, there is an equal and opposite reaction — has an equivalent in financial markets: if price over-shoots in one direction, the reaction/correction is likely to overshoot in the opposite direction. Expect another test of primary support at $26. Failure of that level would offer a target of $16/ounce*.

Spot Silver Compared to Gold

* Target calculation: 26 – ( 36 – 26 ) = 16

November 17, 2011

Yen set for a major reversal

This is a 20-year (monthly) chart of the US dollar against the Japanese yen. The dollar has declined in a primary down-trend since early 2008. Long-term support at 80 failed to halt the fall and the greenback is now ranging between ¥75 and ¥80. The down-trend is in its fourth year and large bullish divergence on 63-day Twiggs Momentum warns of a reaction. Penetration of the declining trendline would strengthen the signal and breakout above 80 would confirm, offering a long-term target of 100.

USDJPY