The ASX 200 broke resistance at 5500, signaling a primary advance to 5800*. A 13-week Twiggs Money Flow trough above zero indicates buying pressure. Reversal below 5450 is unlikely, but would warn of a correction.
The Shanghai Composite Index is retracing and likely to test primary support at 1980. Breach of support would signal a decline to 1950. 13-Week Twiggs Money Flow continues to oscillate around zero, signaling uncertainty.
Dow Jones Euro Stoxx 50 respected support at 3100 and follow-through above 3180 would indicate an advance to 3350*. 13-Week Twiggs Money Flow oscillating above zero indicates a healthy up-trend. Reversal below 3100 is unlikely, but would warn of a correction to the primary trendline.
The S&P 500 is testing resistance at 1880 and follow-through above 1900 would signal another primary advance. Bearish divergence on 13-week Twiggs Money, however, continues to warn of selling pressure and another secondary correction remains likely. But the primary trend is up.
VIX below 14 suggests low risk typical of a bull market.
The Nasdaq 100 is testing resistance at 3600/3650. Breakout would suggest another advance, while respect would be cause for concern. Reversal below 3400 would complete a head and shoulders reversal with a target of 3100* at the primary trendline. 13-Week Twiggs Money Flow below zero indicates strong selling pressure.
The S&P 500 recovered above 1850, suggesting an advance to 1950. Breakout above 1900 would confirm. Recovery of 21-day Twiggs Money Flow above its descending trendline indicates that selling pressure is easing. Reversal below 1840 is less likely, but would warn of a test of primary support at 1750.
CBOE Volatility Index (VIX) retreated to 14, indicating low risk typical of a bull market.
The Nasdaq 100 found strong support at 3400 on the weekly chart. Recovery above 3600 would suggest an advance. Breakout above 3700 would confirm, offering a target of 4000*. Recovery of 13-week Twiggs Money Flow above zero would be a bullish sign. Respect of resistance at 3600 would be bearish.
The Euro is retracing to test support at $1.37 on the monthly chart. Bearish divergence on 13-week Twiggs Momentum continues to warn of medium-term weakness, and penetration of the rising trendline/support at $1.35 would warn of a bull trap. Follow-through above $1.40 is unlikely at present, but would signal an advance to $1.46*.
Dow Jones Euro Stoxx 50 found support at 3100. Recovery above 3180 would signal another advance, but bearish divergence on 13-week Twiggs Momentum suggests weakness. Failure of 3100 would warn of a correction to test 2900/3000.
The DAX found support at 9200 and recovery above 9400 would suggest another test of 9800. Breakout above 9800 is unlikely, but would offer a target of 10600*. Bearish divergence on 13-week Twiggs Money Flow continues to indicate medium-term selling pressure, until the descending trendline is broken. Further consolidation between 9000 and 9800 is the most likely outcome. Breach of primary support at 9000 is unlikely, but would signal reversal to a primary down-trend.
DAX Volatility is rising, but continues to indicate low risk typical of a bull market.
The Footsie similarly found support at 6500. Recovery above 6750 would signal another attempt at 6850. 13-Week Twiggs Money Flow oscillating above zero continues to indicate healthy (long-term) buying pressure. Reversal below 6400 (and the rising trendline) is unlikely, but would signal a primary reversal. Breakout above 6850 is also unlikely at this stage, so again further consolidation is the most likely outcome.
Japan’s Nikkei 225 is testing primary support at 14000, while a large bearish divergence on 13-week Twiggs Money Flow warns of long-term selling pressure. Follow-through below 14000 would confirm a primary down-trend. Recovery above 15000 and the descending trendline is unlikely, but would indicate an advance to 16000*.
Bullish divergence (13-week Twiggs Money Flow) on the Shanghai Composite Index signals medium-term buying pressure. Breakout above 2180 would complete a double bottom reversal. Breach of primary support at 1980 is unlikely, but would offer a target of 1750*.
Indian exchanges were closed Monday. A long-term view of the Sensex displays a healthy up-trend, with 13-week Twiggs Money Flow trough above zero indicating buying pressure. Target for the latest advance is 23000*, but reversal below 22000 would warn of a correction to test the new support level at 21000.
Dow Jones Shanghai index continues its strong performance. Breakout above 285 would complete a double bottom reversal, signaling a primary up-trend. Respect of resistance is more likely, but would still be bullish if followed by narrow consolidation.
The ASX 200 broke its rising trendline and short-term support to signal a correction. Declining 21-day Twiggs Money Flow indicates short-term selling pressure (a trough that respects zero would be a bullish sign). Breach of 5290/5300 would warn of a test of primary support at 5050. Failure of primary support is unlikely, but would signal a down-trend. Recovery above 5460 is also unlikely at present, but would signal a fresh advance.
ASX 200 VIX is rising, but continues to indicate low risk typical of a bull market.
The Aussie Dollar remains strong, consolidating at $0.94 despite ASX weakness. Bullish divergence on 13-week Twiggs Momentum signals a primary up-trend, but we may see the RBA intervene to prevent this. The RBA may need to follow the RBNZ, with macro-prudential controls, to take the steam out of the housing market (setting a maximum LVR percentage, for example) if further rate cuts become necessary.
Barry Ritholz examines the reasons for the current sell-off:
None of these casual explanations can withstand close examination. They are often things that have existed for months or years, and so can’t account for what happened yesterday……
Here is the simple reality most of us try desperately to ignore: Most of the time, we have no idea what is going on. Our understanding of objective reality is at best tenuous. At its worst, our beliefs reflect a completely erroneous viewpoint, one that is as comforting as it is misleading. Indeed, the comfort often comes from hiding the truth from ourselves.
Before we examine the US and Australian markets, please take a look at the two charts below and tell me whether the trend is up or down. If you have a five-year old or six-year old handy, try asking them.
And the second one:
The trend on both is clear. If we invert the charts, you will recognize the S&P 500:
The S&P 500 breach of support at 1840 warns of a secondary correction and a sharp fall on 13-week Twiggs Money suggests selling pressure similar to the correction in late 2012. But the primary trend is up.
Likewise the ASX 200. The index retreated from 5500 and follow-through below 5380 would warn of a secondary correction. But 13-week Twiggs Money Flow oscillating above zero indicates buying pressure and the primary trend remains upward.
Momentum stocks are experiencing a sell-off, but our strategy is to hold existing positions. Attempting to time entries and exits in secondary corrections erodes performance. None of our market filters indicate elevated risk and we are confident that this is a bull market.
A simple reflection of the weekly trend on major markets using Ichimoku Cloud. Candles above the cloud indicate an up-trend, below the cloud indicates a down-trend, while in the cloud reflects uncertainty. From West to East: S&P 500
Nikkei 225 is testing primary support at 14000 and looks a bit weaker
While China is holding above primary support at 1950/2000 but shows no clear trend
Overall, there is a strong case for a bull market.