S&P 500 healthy bounce

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.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) retreated below 13, indicating low risk typical of a bull market.

VIX Index

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.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

Putin Attacks the West’s Soft Underbelly | World Affairs Journal

From Arthur Milikh at the Heritage Foundation:

Alexander Hamilton lamented long ago, in Federalist 25, what may become our tendency to act as if “all that kind of policy by which nations anticipate distant danger and meet the gathering storm must be abstained from.” Putin knows we want to be deceived. But what nation would choose, as Hamilton puts it, to “receive the blow before we could even prepare to return it”?

Putin’s new genre of war in part stems from our Western intellectual deficiencies. He knows we cannot countenance full-on conventional warfare in such a critical region—but we can swallow ambiguity. He knows that we will likely intervene only on account of moralism or shame, but we will not act strategically, trusting in our judgment. Putin will provide us with empirical data to sufficiently muddy the waters and thereby destroy our confidence in our own intuition. The incursion of a “humanitarian” convoy of 200-plus trucks into Ukraine last month was a masterful example of this….

Read more at Putin Attacks the West's Soft Underbelly | World Affairs Journal.

Putin’s Playbook | NYTimes.com

From Maxim Trudolyubov, opinion page editor of the business newspaper Vedomosti:

…So what is Mr. Putin up to, my American friends and colleagues keep asking. He is, quite simply, bent on preserving and expanding his personal and Russia’s international power. Some of his methods were inherited from the Soviets, some were developed in the absence of domestic political traditions, and some were borrowed from the West. There is no consistent ideology. Nor is there is anything particularly Russian about his beliefs. But the methodology in his playbook is constant and ruthless. It involves techniques that function when all past checks on power — institutional constraints and traditional values — are gone. If it’s true that much of the world is moving in this same ruthless direction, then, yes, Mr. Putin’s methods are indeed political guidelines for the future.

Read more at Putin's Playbook – NYTimes.com.

Aussie dollar leads ASX lower

The Australian Dollar found short-term support at $0.90 after last week’s fall. Reversal of 13-week Twiggs Momentum below zero warns of another decline, but expect support at $0.89/$0.90 and at $0.8650/$0.8700. Breach of the latter would confirm a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 is testing a wide band of support between 5420 and 5460. Reversal of 21-day Twiggs Money Flow below zero warns of strong selling pressure. Breach of the rising trendline would suggest a correction to test the primary trendline around 5000. Support levels are indistinct because of frequent back-filling, however, and could establish anywhere between 5300 and 5450.

ASX 200

The ASX 200 VIX is rising, but levels below 20 are typical of a bull market.

ASX 200

Asian stocks cautious

Hong Kong’s Hang Seng Index is retracing to test support at 24000. Rising 13-week Twiggs Money Flow indicates sustained buying pressure. Respect of 24000 would suggest another primary advance, while failure would warn of a correction. Breakout above 25000 would offer a target of 27000*.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index is consolidating at its 2013 high. Rising 13-week Twiggs Money Flow reflects medium-term buying pressure. Breakout above 2340 would strengthen the primary up-trend, but retracement to test the new support level at 2250 remains as likely.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex retreated below short-term support at 27000. Bearish divergence on 13-week Twiggs Money Flow continues to warn of long-term selling pressure, but another trough above zero would negate this. Breach of the secondary rising trendline would warn of a correction, while respect would suggest further gains.

Sensex

* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Japan’s Nikkei 225 index is testing resistance at 16000. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 16300 would signal another advance. Reversal below 15500 is unlikely, but would warn of a correction.

Nikkei 225

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

DAX and Footsie show resilience

Germany’s DAX is retracing in a flag pattern after several weeks of healthy advance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Continuation is likely and breach of resistance at 9800 would indicate another test of 10000. Reversal below 9300 is unlikely.

DAX

Dow Jones Euro Stoxx 50 retreated from its recent high of 3300. Respect of 3200, however, would suggest an advance to 3600*; confirmed if the index breaks above 3300. Respect of the zero line by 13-week Twiggs Money Flow would indicate medium-term buying pressure, while reversal below zero would be bearish.

Dow Jones Euro Stoxx 50

Long tails on the Footsie indicate support at 6800. A “no” vote in the Scottish independence referendum may precipitate another test of long-term resistance 6900, while a “yes” outcome would most likely cause a correction. But any losses are likely to be short-lived as any negotiations settle into a long, drawn-out process.

FTSE 100

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

Canada: TSX threatens breakout

Canada’s TSX 60 consolidating in a narrow range below resistance at the 2008 high of 900 is a bullish sign. Breakout would offer a medium-term target of 935*. 13-Week Twiggs Money Flow oscillating high above zero indicates healthy buying pressure. Reversal below 890 would warn of a test of support at 865/870, but penetration of the rising trendline is unlikely.

TSX 60

* Target calculation: 900 + ( 900 – 865 ) = 935

Dow finds support

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.

Dow Jones Industrial Average

* 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.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) readings remain low, typical of a bull market.

VIX Index

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.

Nasdaq 100

* Target calculation: 4000 + ( 4000 – 3750 ) = 4250

ASX selling pressure

The ASX 200 is falling sharply despite strong performance in China. Breach of the rising trendline (around 5400) would indicate a correction to test the primary trendline around 5000. The support level is indistinct because of frequent back-filling and could establish anywhere between 5300 and 5450. Reversal of 13-week Twiggs Money Flow below zero after a bearish divergence warns of strong selling pressure. Respect of support at the secondary trendline is therefore unlikely.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

The ASX 200 VIX is rising, but low levels remain typical of a bull market.

ASX 200

Dow Jones Shanghai Index continues to make strong gains since commencing a primary up-trend, but expect further resistance between 310 and 315, at the 2013 high.

DJSH

Bad Has Never Looked So Good – Russia

Again from Energy Burrito at Oilprice.com:

…the Russian ruble has been gradually depreciating throughout this year amid rising geopolitical tension in Ukraine. It has now dropped 12% versus the US dollar in 2014.

Yet while a falling ruble hurts Russian imports as they become increasingly more expensive to buy, Russia reaps the rewards when it comes to exports. And it is seeing the greatest benefit from its largest export: oil. To the tune of 7 million barrels a day.

Hence, while crude prices in US dollars have dropped 12% in value since the beginning of July, crude oil in rubles has only dropped 3.4%. For Russian coffers, it is good for the ruble to be bad…

Read more at Bad Has Never Looked So Good.

Bad Has Never Looked So Good

Energy Burrito writes that gasoline prices have fallen nearly 30 cents from their Summer highs:

Why is this good? Because of the one-penny-to-one-billion spending rule. The rule of thumb is that a one-penny change in the price of gasoline leads to a $1 billion increase in household consumption on an annualized basis….gasoline accounts for $2,500 of household spending each year.

Read more at Bad Has Never Looked So Good | Oilprice.com.

The Madness of War

Today Pope Francis denounced war as “madness” in a moving homily delivered at Redipuglia, at a vast monument to the dead of the First World War located in northeasternmost Italy, a stone’s throw from the Slovenian border. The pontiff did not mince words:

“Humanity needs to weep and this is the time to weep … Even today, after the second failure of another world war, perhaps one can speak of a third war, one fought piecemeal, with crimes, massacres, destruction … War is irrational; its only plan is to bring destruction: it seeks to grow by destroying … Greed, intolerance, the lust for power. These motives underlie the decision to go to war and they are too often justified by an ideology.”

From the XX Committee.
Read more at The Isonzo and the Madness of War | The XX Committee.

Gold & crude fall

Gold broke support at $1240/ounce to signal a primary down-trend. Declining 13-week Twiggs Momentum, below zero, strengthens the signal. Follow-through below $1200 would confirm. The sell-off is being driven by a rising Dollar.

Spot Gold

Crude oil is also falling, with Brent Crude testing its 18-month low. Nymex breach of $92/barrel would also signal a primary down-trend.

Nymex and Brent Crude

From Nick Cunningham at Oilprice.com:

The glut of supplies and weak demand is causing problems for OPEC, according to the cartel’s monthly report. OPEC lowered its demand projection for 2015 by 200,000 and in August, Saudi Arabia cut production by 400,000 bpd in an effort to stem oversupply.

It is probably no coincidence, but lower oil prices will hurt the Russian economy. As Nick points out:

Russia needs between $110 and $117 per barrel to finance its spending, which means the Kremlin can’t be happy as it watches Brent prices continue to drop. Combined with an already weak economy, Russia could see its $19 billion surplus become a deficit by the end of the year.

Falling oil prices will benefit the global economy in the medium-term. Subduing Russia’s territorial ambitions will be an added bonus.

Europe uneasy

Weekly highlights:

  • The Dollar is strengthening
  • Treasury yields (long-term) are rising
  • Gold and crude oil are falling
  • European stocks are bearish
  • US stocks remain bullish

The tenuous ceasefire in Eastern Ukraine appears to be holding, but Europe faces another challenge this week, with a Scottish referendum on independence. Predictions of financial mayhem in the event of a “Yes” vote are, I feel, exaggerated in an attempt to influence the outcome. The official position of the UK government is:

“If a majority of those who vote want Scotland to be independent then Scotland would become an independent country after a process of negotiations.”

The “process of negotiations” is likely to be comprehensive and would resolve most outstanding uncertainties in an orderly fashion. There has been much debate over economic issues, but it is no coincidence that the referendum is being held in the same year as the 700th anniversary of the Battle of Bannockburn, when Scots under Robert the Bruce defeated an English army led by Edward II to regain their independence.

Stock markets

Dow Jones Euro Stoxx 50 remains hesitant, retreating from resistance at 3300. Consolidation above 3200 would be a bullish sign, while breach of 3100 would threaten primary support at 3000. Another 13-week Twiggs Money Flow trough above zero would indicate buying pressure, but reversal below zero would warn of a down-trend.

* Target calculation: 3300 + ( 3300 – 3000 ) = 3600

The S&P 500 is edging lower and follow-through below 1980 would indicate another correction. Respect of support at 1950, however, would suggest that the up-trend is intact. Sideways movement on 21-day Twiggs Money Flow, reflects further consolidation.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) below 20 is typical of a bull market.

S&P 500 VIX

China’s Shanghai Composite Index breakout above 2250 signals a primary up-trend. The monthly chart, however, reflects further resistance at 2450/2500*. Rising 13-week Twiggs Money Flow indicates accelerating buying pressure. Reversal below 2250 is most unlikely, but would suggest further consolidation between 2000 and 2250.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

The ASX 200 broke support at 5540/5560, warning of a correction. Bearish divergence on 21-day Twiggs Money Flow indicates medium-term selling pressure. Respect of support at 5440/5460 would indicate that the primary up-trend is intact, while a fall below 5360 would warn of a down-trend.

ASX 200

* Target calculation: 5650 + ( 5650 – 5450 ) = 5850

Why Do Democrats Keep Trying to Ban Guns That Look Scary, Not the Guns That Kill the Most People? – ProPublica

From Lois Beckett:

Over the past two decades, the majority of Americans in a country deeply divided over gun control have coalesced behind a single proposition: The sale of assault weapons should be banned.

That idea was one of the pillars of the Obama administration’s plan to curb gun violence, and it remains popular with the public. In a poll last December, 59 percent of likely voters said they favor a ban.

…It turns out that big, scary military rifles don’t kill the vast majority of the 11,000 Americans murdered with guns each year. Little handguns do. In 2012, only 322 people were murdered with any kind of rifle, F.B.I. data shows.

These statistics are not a sound argument against a curb on assault weapons. Saving even a fraction of the 322 firearm deaths caused by rifles would be a positive step. But it does illustrate politicians’ propensity to follow the path of least resistance, rather than taking effective action. A partial restriction on handguns — whether on sales, ownership, storage or requiring trigger locks — would not grab as many headlines, but would be far more effective in saving lives.

Read more at Why Do Democrats Keep Trying to Ban Guns That Look Scary, Not the Guns That Kill the Most People? – ProPublica.

No Rebound In Sight For Sliding Oil Prices

From Nick Cunningham at Oilprice.com

Brent crude has now dipped below $100 per barrel, for the first time in over a year. WTI is trading around $92 per barrel, a 16-month low.

…The glut of supplies and weak demand is causing problems for OPEC, according to the cartel’s monthly report. OPEC lowered its demand projection for 2015 by 200,000 and in August, Saudi Arabia cut production by 400,000 bpd in an effort to stem oversupply.

Read more at No Rebound In Sight For Sliding Oil Prices.

European resistance

Germany’s DAX found resistance at 9700/9800. Recovery of 13-week Twiggs Money Flow above zero indicates short-term buying pressure, but the long-term signal remains bearish. Reversal below 9300 would warn of another test of primary support at 9000.

DAX

Dow Jones Euro Stoxx 50 is testing resistance at the recent high of 3300. But declining 13-week Twiggs Money Flow again warns of long-term selling pressure. Breakout above 3300 is unlikely but would suggest another advance, while reversal below 3200 — or Twiggs Money Flow below zero — would warn of another correction.

Dow Jones Euro Stoxx 50

The Footsie appears unfazed by threats of Scottish independence, testing long-term resistance at 6850/6900. 13-Week Twiggs Money Flow troughs above zero indicate healthy buying pressure, but there is a major psychological barrier at the 1999 high of 6900/7000. Narrow consolidation below this level would be a bullish sign, while a correction to test primary support at 6500 would suggest further hesitancy.

FTSE 100

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

Asian stocks pause

Hong Kong’s Hang Seng Index continues to encounter resistance at 25000, but respect of support at 24000 and rising 13-week Twiggs Money Flow indicate sustained buying pressure. Breakout would offer a target of 27000*.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

China’s Shanghai Composite Index is consolidating after breaking resistance at 2250. Rising 13-week Twiggs Money Flow reflects medium-term buying pressure. The primary trend is up, but expect retracement to test the new support level at 2250.

Shanghai Composite Index

* Target calculation: 2250 + ( 2250 – 2000 ) = 2500

India’s Sensex has reached its long-term target of 27000*, shown here on a quarterly chart. Bearish divergence on 13-week Twiggs Money Flow continues to warn of long-term selling pressure. Respect of the zero line appears likely and would suggest a further advance, but a fall below zero would warn of a decline to test the rising trendline.

Sensex

* Target calculation: 21000 + ( 21000 – 15000 ) = 27000

Japan’s Nikkei 225 index continues its advance towards 16300. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 15500 is unlikely, but would warn of a test of 14800.

Nikkei 225