A bad case of the ‘nineties

The 1990s featured two significant upheavals in global financial markets. First, 1990 saw the Nikkei collapse from its high of 39000, reaching an eventual low of 7000 in 2008.

Nikkei 225 Index

The collapse followed strong appreciation of the Yen after the September 1985 Plaza Accord and the ensuing October 1987 global stock market crash. The Plaza Accord attempted to curtail long-term currency manipulation by Japan who had built up foreign reserves — mainly through purchases of US Treasuries — to suppress appreciation of the Yen against the Dollar and maintain a current account surplus.

Seven years later, collapsing currencies during the 1997 Asian financial crisis destroyed fast-growing economies — with Thailand, South Korea and Indonesia experiencing 40%, 34% and 83% falls in (1998) GNP respectively — and eventually led to the 1998 Russian default and break up of the Soviet Union. Earlier, rapidly growing exports with currencies pegged to the Dollar brought a flood of offshore investment and easy credit into the Asian tigers. Attempts by the IMF to impose discipline and a string of bankruptcies spooked investors into a stampede for the exits. Falling exchange rates caused by the stampede led to a further spate of bankruptcies as domestic values of dollar-denominated debt skyrocketed. Attempts by central banks to shore up their currencies through raising interest rates failed to stem the outflow and further exacerbated the disaster, causing even more bankruptcies, with borrowers unable to meet higher interest charges.

What we are witnessing is a repeat of the nineties. This time it was China that attempted to ride the dragon, pegging its currency against the Dollar and amassing vast foreign reserves in order to suppress appreciation of the Yuan and boost exports. The Chinese economy benefited enormously from the vast trade surplus with the US, but those who live by the dragon die by the dragon. Restrictions on capital inflows into China may dampen the reaction, compared to the 1997 crisis, but are unlikely to negate it. The market will have its way.

Financial markets in the West are cushioned by floating exchange rates which act as an important shock-absorber against fluctuations in financial markets. The S&P 500 fell 13.5% in 1990 but only 3.5% in October 1997. The ensuing collapse of the ruble and failure of LTCM, however, caused another fall of 9.0% a year later. Not exactly a crisis, but unpleasant all the same.

North America

The domestic US economy slowed in the past few months but increased spending on light motor vehicles and housing suggested that robust employment growth would continue. Upheaval in financial markets (and exports) now appears likely to negate this, leading to a global market down-turn.

The S&P 500 breached primary support at 1980, signaling a primary down-trend. The index has fallen 4.5% from its earlier high and presents a medium-term target of 1830*. Decline of 13-week Twiggs Money Flow below zero would confirm the signal but descent has been gradual, suggesting medium-rather than long-term selling pressure.

S&P 500 Index

* Target calculation: 1980 + ( 2130 – 1980 ) = 1830

The CBOE Volatility Index (VIX) spiked upwards indicating rising market risk.

S&P 500 VIX

Bellwether transport stock Fedex broke primary support at $164, confirming the primary down-trend signaled by 13-week Twiggs Money Flow reversal below zero. The fall warns of declining economic activity.

Fedex

Canada’s TSX 60 broke primary support at 800, confirming the earlier bear signal from 13-week Twiggs Momentum reversal below zero. Target for a decline is 700*.

TSX 60 Index

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

Europe selling

Germany’s DAX broke medium-term support at 10700. Expect further medium-term support at 10000 but reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of 10000 would indicate a test of primary support at 9000.

DAX

* Target calculation: 10700 – ( 11800 – 10700 ) = 9600

The Footsie broke 6450, signaling a test of primary support at 6100. Reversal of 13-week Twiggs Money Flow below zero warns of (long-term) selling pressure. Breach of 6100 would offer a target of 5000**.

FTSE 100

* Target calculation: 6450 – ( 6800 – 6450 ) = 6100 **Long-term: 6000 – ( 7000 – 6000 ) = 5000

Asia

The Shanghai Composite reflects artificial, state-backed support at 3500. Declining 13-week Twiggs Money Flow warns of long-term selling pressure. Withdrawal of government support is unlikely, but breach of 3400/3500 would cause a nineties-style collapse in stock prices.

Shanghai Composite Index

* Target calculation: 4000 – ( 5000 – 4000 ) = 3000

Japan’s Nikkei 225 appears headed for a test of 19000. Breach would test primary support at 17000 but, given the scale of BOJ easing, respect is as likely and would indicate further consolidation between 19000 and 21000. Gradual decline of 13-week Twiggs Money Flow suggests medium-term selling pressure.

Nikkei 225 Index

* Target calculation: 21000 + ( 21000 – 19000 ) = 23000

India’s Sensex is holding up well, with rising 13-week Twiggs Money Flow signaling medium-term buying pressure. Breakout above 28500 is unlikely but would indicate another test of 30000. Decline below 27000 would warn of a primary down-trend; confirmed if there is follow-through below 26500.

SENSEX

Australia

Commodity-rich Australian stocks are exposed to China and emerging markets. The only protection is the floating exchange rate which is likely to adjust downward to absorb the shock — as it did during the 1997 Asian crisis. 13-Week Twiggs Money Flow below zero warns of (long-term) selling pressure on the ASX 200. Breach of support at 5150 is likely and would confirm a primary down-trend. Long-term target for the decline is 4400*. Respect of primary support is unlikely, but would indicate consolidation above the support level rather than a rally.

ASX 200

Asian stocks

The Shanghai Composite is consolidating between 4000 and 4500. Breach of either of these levels would signal future direction. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure, favoring the downside.

Shanghai Composite Index

* Target calculation: 3500 + ( 3500 – 2500 ) = 4500

Short retracement on Japan’s Nikkei 225 Index is a bullish sign. Breakout above 20000 would offer a target of 22000*. Declining 13-week Twiggs Money Flow reflects medium-term selling pressure; recovery above the descending trendline would be a bullish sign.

Nikkei 225 Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex found support between 26500 and 27000. Long tails suggest medium-term buying pressure. Recovery above 28000 and the descending trendline would suggest another attempt at 30000. But 13-week Twiggs Money Flow remains below zero, warning of (long-term) selling pressure. Another peak below zero would warn of breach of primary support and a reversal.

SENSEX

Markets back on track

Threat of a Russian collapse roiled markets in early December, but the immediate crisis now seems to have passed.

Recovery of the S&P 500 above resistance at 2080 would indicate another advance , with a target of 2150*. Rising 13-week Twiggs Money Flow troughs indicate long-term buying pressure. Reversal below 2000 is most unlikely.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1850 ) = 2150

A 10-year view of CBOE Volatility Index (VIX) suggests low to moderate risk typical of a bull market.

S&P 500 VIX

My favorite bellwether, transport stock Fedex, also underwent a correction. The long tail suggests buying pressure and breakout above the recent high would confirm a strong bull trend, indicating rising economic activity.

Fedex

Dow Jones Euro Stoxx 50 found support at 3000 and is likely to test 3300. Rising 13-week Twiggs Money Flow indicates buying pressure, but the index is likely to continue ranging between these two levels until tensions between Russia and Eastern Europe are resolved.

DJ Euro Stoxx 50

China’s Shanghai Composite Index is in a strong bull trend, having broken resistance at 2500, and is likely to test the 2009 high at 3500. Rising 13-week Twiggs Money Flow indicates strong (medium-term) buying pressure.

Shanghai Composite Index

I continue to question China’s ability to sustain this performance, given their poor economic foundation.

Japan’s Nikkei 225 Index breakout above its 2007 high of 18000 would signal an advance to 19000*. Rising 13-Week Twiggs Money Flow indicates strong buying pressure. Index gains are largely attributable to rising inflation and a weaker yen.

Nikkei 225 Index

* Target calculation: 18000 + ( 18000 – 17000 ) = 19000

India’s Sensex found support at 27000. Recovery above 28000 would suggest another advance. Breakout above 29000 would confirm a target of 31000*.

Sensex

* Target calculation: 29000 + ( 29000 – 27000 ) = 31000

ASX 200 performance remains weak. Breach of the recent descending trendline suggests that the correction is over, but only breakout above 5550 would complete a double-bottom formation, suggesting a fresh advance. Rising troughs on 13-week Twiggs Money Flow indicate medium-term buying pressure. Reversal of TMF below zero, or breach of support at 5000/5150, is now less likely, but would warn of a down-trend.

ASX 200

* Target calculation: 5500 + ( 5500 – 5000 ) = 6000

A long-term view

Better than expected US jobs data and strong German factory orders helped to rally markets Friday. Also, ECB chief Mario Draghi’s Thursday announcement is seen as supporting broad-based asset purchases (QE) early in 2015. A long-term view of major markets may help to place current activity in perspective.

The S&P 500 continues a strong advance, with rising 13-week Twiggs Money Flow indicating medium-term buying pressure. Long-term and medium targets coincide at 2250* and we should expect further resistance at this level.

S&P 500 Index

* Target calculation: 1500 + ( 1500 – 750 ) = 2250; 2050 + ( 2050 – 1850 ) = 2250

CBOE Volatility Index (VIX) continues to indicate low risk typical of a bull market.

S&P 500 VIX

Germany’s DAX broke resistance at its earlier high of 10000, suggesting a further advance. Recovery of 13-week Twiggs Momentum above zero indicates continuation of the up-trend. The long-term target is 12500*, though I cannot see this being reached until tensions in Eastern Europe are resolved.

DAX

* Target calculation: 7500 + ( 7500 – 2500 ) = 12500

The Footsie is testing long-term resistance at 6900/7000. Respect of the zero line by 13-Week Twiggs Money Flow indicates long-term buying pressure. Breakout above 7000 would signal a fresh primary advance, with a long-term target of 10500*.

FTSE 100

* Target calculation: 7000 + ( 7000 – 3500 ) = 10500

China’s Shanghai Composite Index broke resistance at 2500 and is likely to test the 2009 high at 3500. Rising 13-week Twiggs Money Flow indicates strong (medium-term) buying pressure.

Shanghai Composite Index

Japan’s Nikkei 225 Index is testing resistance at its 2007 high of 18000. 13-Week Twiggs Money Flow respecting the zero line indicates long-term buying pressure. Breakout would signal another primary advance. A long-term target of 28000* seems unachievable unless one factors in rising inflation and continued devaluation of the yen.

Nikkei 225 Index

* Target calculation: 18000 + ( 18000 – 8000 ) = 28000

Weak ASX 200 performance is highlighted by the distance below its 2007 high of 6850. Falling commodity prices have retarded the recovery and are likely to continue for some time ahead.

The 2005-2008 Australian commodities boom was squandered, damaging local industry and hampering the current recovery. Norway successfully weathered a similar commodities boom in the 1990s, protecting local industry while establishing a sovereign wealth fund that is the envy of its peers. Their fiscal discipline set a precedent which should be followed by any resource-rich country looking to navigate a sustainable path through a commodities boom and avoid the dreaded “Dutch Disease”.

Respect of support at 5000 would indicate the primary up-trend is intact — but declining 13-week Twiggs Money Flow indicates selling pressure. Reversal of TMF below zero or breach of support at 5000/5150 would warn of a down-trend.

ASX 200

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

The daily chart shows a slightly improved perspective. 21-Day Twiggs Money Flow oscillating around zero signals indecision. Recovery above 5400 would suggest the correction is over. But reversal below 5200 is as likely and would warn of a test of primary support at 5120/5150.

ASX 200 daily

A tale of two economies

Stock markets in Western Europe and Asia are rallying on the strength of falling oil prices, joining the US in a bull trend. But primary producers, largely dependent on commodity exports, are likely to suffer as a result of falling prices. Australia is no exception.

The S&P 500 continues a primary advance. A conservative target would be 2200*. Rising 13-week Twiggs Money Flow indicates medium-term buying support. Reversal below 2000 is unlikely, but would warn of another correction.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1800 ) = 2200

CBOE Volatility Index (VIX) indicates low risk typical of a bull market.

S&P 500 VIX

Germany’s DAX is testing resistance at its earlier high of 10000. Recovery of 13-week Twiggs Money Flow above the declining trendline suggests medium-term buying pressure. Breakout above resistance would offer a conservative target of 11000*. Reversal below 9000 is unlikely, but would warn of a primary down-trend.

DAX

* Target calculation: 10000 + ( 10000 – 9000 ) = 11000

The Footsie is also testing long-term resistance on the monthly chart — at 6900/7000. The sharp rise on 13-Week Twiggs Money Flow indicates strong medium-term buying pressure, but resistance at the December 1999 high is likely to be solid. Reversal below 6500 remains unlikely.

FTSE 100

China’s Shanghai Composite Index cleared resistance at 2440/2500, signaling a primary up-trend. 13-Week Twiggs Money Flow respect of its rising trendline confirms (medium-term) buying pressure. I remain wary of China. The recent rate-cut by the PBOC is cause for concern, not jubilation.

Shanghai Composite Index

* Target calculation: 2500 + ( 2500 – 2000 ) = 3000

Japan’s Nikkei 225 Index is headed for long-term resistance at 18000. 13-Week Twiggs Money Flow oscillating above the zero line indicates long-term buying pressure. Reversal below 16500 is unlikely.

Nikkei 225 Index

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

The ASX 200 is undergoing another correction. Respect of support at 5250/5300 would indicate the primary up-trend is intact — but 13-week Twiggs Money Flow reversal below zero warns of strong selling pressure. Breach of support is likely and would warn of a test of 5000.

ASX 200

* Target calculation: 5650 + ( 5650 – 5300 ) = 6000

Markets rebound except for ASX

  • US stocks continue their bull-trend
  • European stocks strengthen
  • China likewise
  • ASX Energy and Materials sectors under pressure

The S&P 500 broke through the upper border of its broadening wedge formation, signaling a fresh advance with a target of 2300*. Rising 13-week Twiggs Money Flow indicates medium-term buying support. Reversal below 2000 is unlikely, but would warn of another correction.

S&P 500 Index

* Target calculation: 2050 + ( 2050 – 1800 ) = 2300

CBOE Volatility Index (VIX) at 13 continues to reflect low risk typical of a bull market.

S&P 500 VIX

Germany’s DAX broke through resistance at 9400/9500, signaling another test of 10000. Rising 13-week Twiggs Money Flow refllects medium-term buying pressure. Reversal below 9400 is unlikely at present, but would warn of another test of primary support at 9000.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie is also headed for a test of its long-term high at 6900/6950. The sharp rise on 13-Week Twiggs Money Flow indicates strong medium-term buying pressure. Reversal below 6500 is unlikely.

FTSE 100

China’s Shanghai Composite Index respected support at its 2013 high of 2440, signaling a fresh advance. 13-Week Twiggs Money Flow respect of its rising trendline confirms (medium-term) buying pressure.

Shanghai Composite Index

* Target calculation: 2400 + ( 2400 – 2300 ) = 2500

The ASX 200 is weaker, undergoing another correction. Respect of support at 5250/5300 would indicate the primary up-trend is intact — as would a 13-week Twiggs Money Flow trough above zero. Penetration of primary support at 5120/5150, however, would signal a primary down-trend.

ASX 200

* Target calculation: 5650 + ( 5650 – 5300 ) = 6000

ASX 200 Materials (15.7%) and Energy (6.0%) sectors have commenced a down-trend. This is in sharp contrast to the Financial (46.2% including REITs) and Health Care (5.2%) sectors which continue in a healthy up-trend. It is possible for the first two sectors, with a combined weighting of 21.7%, to reverse the broad index, but is not likely unless the contagion spreads to the Industrial and Financial sectors. Increased risk-weightings for home mortgages and stronger capital ratios for major banks are likely recommendations of the Murray inquiry. These will improve the long-term strength and growth prospects for Financials, but a negative reaction in the short-term could tip the sector into a down-trend.

ASX 200 sectors

ASX under pressure

The S&P 500 continues to test resistance at 2050, the upper bound of the broadening wedge. Rising 13-week Twiggs Money Flow suggests buying pressure. Breakout would offer a target of 2250*. Reversal below 2000 is less likely, but would warn of another correction.

S&P 500

* Target calculation: 2050 + ( 2050 – 1850 ) = 2250

The CBOE Volatility Index (VIX) indicates low risk typical of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 is testing resistance at 3140. Breakout would indicate an advance to 3300. 13-Week Twiggs Money Flow oscillating around zero suggests indecision. Respect of 3140 would test primary support at 3000.

Dow Jones Euro Stoxx 50

The Shanghai Composite Index retraced to test support at 2440, while declining 13-week Twiggs Money Flow indicates medium-term selling pressure. Reversal below the rising trendline at 2400 would warn of a correction, while respect would suggest trend strength.

Shanghai Composite

Hong Kong’s Hang Seng Index is weaker. Reversal below 23000 would warn of a test of primary support at 21200/21500. Twiggs Money Flow (13-week) reversal below zero would also be a strong bear signal.

HSI

The ASX 200 is undergoing another correction. Respect of support at 5250/5300 would indicate reasonable trend strength, but declining 21-day Twiggs Money Flow suggests medium-term selling pressure. With both Energy and Metals & Mining sectors under pressure, a test of primary support at 5120/5150 is likely.

ASX 200

The Aussie Dollar is also falling, having reversed below primary support at $0.8650 to signal a decline to $0.80*.

Aussie Dollar

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

A quiet week in the markets

  • US stocks continue their bull-trend
  • European stocks strengthen
  • China likewise
  • ASX retraces to test support

The S&P 500 is testing the upper border of a broadening wedge formation. Retracement that respects support at 2000 would enhance the bull signal and offer a target of 2280*. Rising 13-week Twiggs Money Flow indicates buyers are in control. Reversal below 2000 and the rising trendline is unlikely, but would signal another correction.

S&P 500 Index

* Target calculation: 2040 + ( 2040 – 1820 ) = 2280

Dow Jones Industrial Average has already broken above a similar broadening wedge formation, offering a long-term target of 19000*.

Dow Jones Industrial Average

* Target calculation: 17500 + ( 17500 – 16000 ) = 19000

CBOE Volatility Index (VIX) continues to reflect low risk typical of a bull market.

S&P 500 VIX

Germany’s DAX is testing resistance at 9400/9500, but 13-week Twiggs Money Flow remains weak. Reversal of TMF below zero would warn of another correction. Reversal below 9000 would confirm a primary down-trend. Follow-through above 9500 is less likely, but would suggest another test of 10000.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie proved more robust, breaking resistance, at 6500/6560 to signal a test of 6900. 13-Week Twiggs Money Flow is rising strongly, signaling buyers are in control.

FTSE 100

China’s Shanghai Composite Index broke resistance at its 2013 high of 2440, signaling an advance. 13-Week Twiggs Money Flow reversal below its rising trendline, however, would warn of (medium-term) selling pressure.

Shanghai Composite Index

* Target calculation: 2400 + ( 2400 – 2300 ) = 2500

The ASX 200 retraced to test support at 5440/5450. Respect would signal another test of the August high at 5650/5660. Failure of support would indicate a test of 5250/5300 and a weaker up-trend. Reversal below 5250 remains unlikely, but would warn of another test of primary support. A 21-day Twiggs Money Flow trough above zero would signal long-term buying pressure.

ASX 200

* Target calculation: 5650 + ( 5650 – 5300 ) = 6000

S&P 500 bullish but Europe and China encounter resistance

Retracement of the S&P 500 respected its new support level at 2000, confirming a primary advance with a target of 2150*. Recovery of 13-week Twiggs Money Flow above the declining trendline indicates buyers are back in control. Reversal below 2000 and the rising trendline is unlikely, but would signal another correction.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1850 ) = 2150

CBOE Volatility Index (VIX) at 13 indicates low risk typical of a bull market.

S&P 500 VIX

Germany’s DAX found resistance at 9400 and retracement to test support at 9000 is likely. Failure of the former primary support level at 8900/9000 would confirm a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero would also indicate that sellers dominate.

DAX

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie also encountered resistance, at 6500/6560. Respect of this level would warn of a primary down-trend, but rising 13-week Twiggs Money Flow suggests medium-term buying pressure.

FTSE 100

China’s Shanghai Composite Index is testing its 2013 high of 2440. Declining 13-week Twiggs Money Flow warns of (medium-term) resistance.

Shanghai Composite Index

* Target calculation: 2400 + ( 2400 – 2300 ) = 2500

Hong Kong’s Hang Seng Index also found resistance, at 24000. Reversal below 23000 would confirm a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero would strengthen the bear signal.

Hang Seng Index

The ASX 200, influenced by both the US and China, is testing resistance at 5550. Rising 13-week Twiggs Money Flow (above zero) indicates medium-term buying pressure. Expect a test of 5650/5660. Reversal below 5380/5400 is less likely, but would warn that sellers have resumed control. I have lowered the target to 6000* because of constant back-filling in recent months.

ASX 200

* Target calculation: 5650 + ( 5650 – 5300 ) = 6000

Asia: Governor Kuroda bets on QE

Aggressive asset purchases by the Bank of Japan shows Governor Kuroda’s willingness to back his QE policy to the hilt. The Yen has weakened significantly against the Dollar over the last two years and this trend is likely to continue.

USDJPY

The Nikkei 225 surged through 16300, signaling a fresh advance. The long-term target is 18000*. Reversal below 16000 is unlikely, but would warn of another correction. Recovery of 13-week Twiggs Money Flow above zero indicates medium-term buying pressure.

Nikkei 225

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

Hong Kong’s Hang Seng Index is testing resistance at 24000. Reversal below 23000 would warn of a primary down-trend. Breach of 21200 would confirm. Reversal of 13-week Twiggs Money Flow below zero would strengthen the bear signal. Follow-through above 25000 is unlikely, but would signal another primary advance.

Hang Seng Index

China’s Shanghai Composite Index respected support at 2250, strengthening the bull signal. Follow-through above 2450 would confirm a primary up-trend. 13-Week Twiggs Money Flow remains in an up-trend, signaling medium-term buying pressure. Reversal below 2250 is unlikely, but would warn of trend weakness.

Shanghai Composite Index

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

India’s Sensex continues in a primary up-trend, testing resistance at 28000. Troughs above zero on 13-week Twiggs Money Flow indicate buying pressure. Short retracements rather than stronger corrections also suggest buying pressure. Breakout above 28000 would indicate an advance to 29000. The index is becoming over-extended, but may remain so for some time. Reversal below 27000 and the secondary trendline is less likely, but would indicate a correction to the primary trendline around 25000.

Sensex

* Target calculation: 27000 + ( 27000 – 26000 ) = 28000

Dow and S&P 500 make new highs

  • US stocks have reaffirmed their bull market
  • European stocks are recovering
  • China and Japan signal up-trends
  • ASX is rising

The new reporting season is under way and fund managers are now looking for opportunities rather than selling off under-performers.

Dow Jones Industrial Average made a new high, above 17300, signaling a primary advance. Reversal below 17000 and the rising trendline is most unlikely, but would warn of another correction. Target for the advance is 18000*.

Dow Jones Industrial Average

* Target calculation: 17000 + ( 17000 – 16000 ) = 18000

The S&P 500 similarly made a new high, signaling a fresh advance. Rising 13-week Twiggs Money Flow (above zero) indicates medium-term buying pressure. Target for the advance is 2150*. Reversal below 2000 and the rising trendline is unlikely, but would signal another correction.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1850 ) = 2150

CBOE Volatility Index (VIX) at 14 indicates low risk typical of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 continues to advance above its former primary support level at 3000. Long tails on the weekly candlesticks and recovery of 13-week Twiggs Money Flow above zero indicate buying pressure. Expect another test of 3300. Reversal below 3000 is less likely, but would signal a primary down-trend.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

China’s Shanghai Composite Index rallied above its recent high at 2400, confirming a primary up-trend. Target for the new advance is 2500*. and the rising trendline, warning of a correction. Rising 13-week Twiggs Money Flow trough (above zero) indicates medium-term buying pressure; completion of a trough high above zero would signal trend strength.

Shanghai Composite Index

* Target calculation: 2400 + ( 2400 – 2300 ) = 2500

Japan’s Nikkei 225 Index broke resistance at 16300, signaling an advance with a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of another correction.

Nikkei 225 Index

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

The ASX 200 is headed for a test of resistance at 5660. Brief retracement at 5440 and rising 21-day Twiggs Money Flow (above zero) both indicate medium-term buying pressure. Reversal below 5440 is unlikely, but would indicate a test of 5250. I have lowered the target to 6000* because of constant back-filling in recent months.

ASX 200

* Target calculation: 5650 + ( 5650 – 5300 ) = 6000

Hong Kong weighs on China

Hong Kong’s Hang Seng Index is testing support at 23000. Narrow consolidation warns of continuation to test primary support at 21200. Reversal of 13-week Twiggs Money Flow below zero suggests a primary down-trend. Breach of support at 21200 would confirm.

Hang Seng Index

China’s Shanghai Composite Index is retracing after penetration of its secondary trendline, but at this stage it’s no more than a secondary correction. Hong Kong could weigh on the index, however. Reversal of 13-week Twiggs Money Flow below zero would warn of a primary down-trend.

Shanghai Composite Index

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

India’s Sensex broke clear of its recent flag formation and is again testing resistance at 27000. Bearish divergence on 13-week Twiggs Money Flow remains a concern, but breakout above 27000 would indicate an advance to 28000*. Reversal below 26000 would signal a correction to the primary trendline.

Sensex

* Target calculation: 27000 + ( 27000 – 26000 ) = 28000

October correction nearing end

  • DAX and FTSE in a down-trend
  • China and Hong Kong retreat
  • US stocks remain in a bull market
  • ASX ends correction

The new reporting season is under way and fund managers are now looking for opportunities rather than selling off under-performers.

The S&P 500 broke resistance at 1900 and 1925. Penetration of the descending trendline suggests that the October correction is over. Recovery of 21-Day Twiggs Money Flow above zero indicates medium-term buying pressure. Expect a test of resistance at 2000 followed by consolidation or retracement to confirm support at 1925. Narrow consolidation below 2000 would be a bullish sign.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1850 ) = 2150

CBOE Volatility Index (VIX) at 16 again indicates low risk typical of a bull market.

S&P 500 VIX

The Nasdaq 100 recovered above resistance at 4000, indicating a fresh advance. Penetration of the descending trendline signals that the correction is over. Completion of a 13-week Twiggs Money Flow trough high above zero would indicate long-term buying pressure. Reversal below 4000 is unlikely, but would warn of another test of support.

Nasdaq 100

* Target calculation: 4100 + ( 4100 – 3800 ) = 4400

Dow Jones Euro Stoxx 50 recovered above its former primary support level at 3000, suggesting a bear trap. The primary trend remains downward, but recovery of 13-week Twiggs Money Flow above zero would suggest another test of 3300.

Dow Jones Euro Stoxx 50

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

China’s Shanghai Composite Index retreated below support at 2340/2350 and the rising trendline, warning of a correction. A 13-week Twiggs Money Flow trough above zero would confirm the primary up-trend, while reversal below zero would warn of a bear market.

Shanghai Composite Index

The ASX 200 recovered above resistance at 5250 and 5350 and the descending trendline, indicating that the correction is over. Breach of resistance at 5450 would signal another test of 5650. Bullish divergence and rising 21-day Twiggs Money Flow (above zero) indicate medium-term buying pressure. Reversal below 5350 is unlikely, but would indicate another test of 5120.

ASX 200

Hang Seng falters

Hong Kong’s Hang Seng Index is testing support at 23000. Reversal of 13-week Twiggs Money Flow below zero warns of a primary down-trend. Breach of support at 21000 would confirm.

Hang Seng Index

China’s Shanghai Composite Index continues to test its new support level at 2340. Respect would suggest an advance to 2500*. Breach would warn of a correction. I remain wary because of weakness in Hong Kong.

Shanghai Composite Index

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

October sell-off: Drawing to a close?

  • DAX and FTSE find support, but remain in a down-trend
  • China is bullish, but Japan bearish
  • US stocks find support and continue to indicate a bull market
  • ASX respects primary support

The S&P 500 found support at 1820 and is testing resistance at 1900. Breach of resistance would suggest that the correction is over. 21-Day Twiggs Money Flow below zero, however, continues to warn of medium-term selling pressure. Respect of resistance is more likely, indicating another test of support at 1800*.

S&P 500 Index

* Target calculation: 1900 – ( 2000 – 1900 ) = 1800

CBOE Volatility Index (VIX) retreated to 22, indicating moderate risk, but nowhere near the 30+ levels typical of a bear market.

S&P 500 VIX

Dow Jones Industrial Average recovered above resistance (the former support level) at 16300, the long tail indicating short-term buying pressure. Follow-through above the descending trendline would signal that the correction is over. Recovery above the recent highs at 25% on 13-week Twiggs Money Flow would suggest that buyers have regained control.

Dow Jones Industrial Average

Germany’s DAX is retracing to test resistance at 9000. Respect would confirm a primary down-trend. 13-Week Twiggs Momentum below zero strengthens the bear signal. Target for the decline is 8000*. Recovery above 9000 remains unlikely, but would warn of a bear trap.

Dow Jones Euro Stoxx 50

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie displays a similar long tail, indicating buying pressure. Recovery above 6500 is unlikely, but would warn of a bear trap. Respect of resistance would offer a target of 6000*.

FTSE 100 Index

* Target calculation: 6400 – ( 6800 – 6400 ) = 6000

China’s Shanghai Composite Index is testing support at 2340/2350. Breach would warn of a correction. But the primary up-trend remains and rising 13-week Twiggs Money Flow signals medium-term buying pressure.

Shanghai Composite Index

Japan’s Nikkei 225 Index plunged through support at 14800, warning of a test of primary support at 13900/14000. Reversal of 13-week Twiggs Money Flow below zero indicates (long-term) selling pressure.

Nikkei 225 Index

The ASX 200 recovered above resistance at 5250 and the descending trendline, suggesting that the correction is over. Bullish divergence and a rising 21-day Twiggs Money Flow (above zero) indicates medium-term buying pressure. Recovery above 5350 would confirm that buyers are back in control, while reversal below 5250 would indicate another test of 5000/5050.

ASX 200

* Target calculation: 5350 – ( 5650 – 5350 ) = 5050

ASX 200 VIX remains below 20, indicating low risk typical of a bull market.

ASX 200 VIX

October sell-off continues

  • DAX and FTSE break support, signaling a down-trend
  • China is bullish, but rest of Asia is bearish
  • US stocks are correcting, but continue to indicate a bull market
  • ASX testing primary support

The quarter-end sell-off has been exacerbated by weakness in Europe.

Germany’s DAX broke primary support at 8900/9000, signaling a (primary) down-trend. Reversal of 13-week Twiggs Money Flow below zero strengthens the bear signal. Target for the decline is 8000*. Recovery above 9000 is unlikely, but would warn of a bear trap.

Dow Jones Euro Stoxx 50

* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The Footsie displays similar weakness, breaching primary support at 6400/6500. Target for the decline is 6000*. Recovery above 6500 is unlikely, but would warn of a bear trap.

FTSE 100 Index

* Target calculation: 6400 – ( 6800 – 6400 ) = 6000

China’s Shanghai Composite Index is holding above its new support at 2340/2350, but expect retracement to at least 2250 in response to US/European weakness.

Shanghai Composite Index

Japan’s Nikkei 225 Index broke medium-term support at 15500 and the rising trendline to warn of a correction. Reversal of 13-week Twiggs Money Flow below zero would strengthen the signal. Breach of 14800 would indicate a test of primary support at 14000.

Nikkei 225 Index

The S&P 500 is testing primary support at 1900. Declining 13-week Twiggs Money Flow warns of selling pressure. Reversal below zero would indicate a down-trend, offering a target of 1800*.

S&P 500 Index

* Target calculation: 1900 – ( 2000 – 1900 ) = 1800

CBOE Volatility Index (VIX) rose to above 20, indicating moderate risk, but nowhere near the levels typical of a bear market.

S&P 500 VIX

The ASX 200 broke support at 5250/5300, suggesting a test of long-term support at 5000. Declining 13-week Twiggs Money Flow below zero indicates strong selling pressure. Recovery above 5350 is unlikely, but would suggest that the correction is over.

ASX 200

* Target calculation: 5350 – ( 5700 – 5350 ) = 5000

US job growth rebounds

  • US job growth rebounds, halting the correction
  • Gold and crude oil are falling
  • European stocks remain bearish
  • Asian stocks are bearish
  • US stocks continue to indicate a bull market

We are at the September quarter-end and stock weakness is likely to continue into October.

From the Wall Street Journal:

U.S. job growth rebounded in September and the jobless rate fell below 6% for the first time since mid-2008, suggesting the labor market is improving faster than previously thought. Nonfarm payrolls grew a seasonally adjusted 248,000 last month, the fastest pace since June, the Labor Department said Friday.

The S&P 500 broke downwards from its broadening wedge formation this week, warning of a correction to 1900. But Thursday’s long tail and Friday’s rally indicate buying support below 1950. Another test of 2000 is likely. Respect of resistance would warn of further weakness in October, while breakout would suggest a fresh advance; follow-through above 2020 would confirm.

S&P 500

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

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

S&P 500 VIX

Dow Jones Euro Stoxx 50 found support at 3100, but this is unlikely to hold. Expect another test of primary support at 3000. Breach would signal a down-trend. Fall of 13-week Twiggs Money Flow below zero would strengthen the bear signal.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

Dow Jones Asia Index is headed for a test of 2800 on the weekly chart despite continued bullishness on the Shanghai Composite, reflecting strength in the US Dollar. Penetration of the rising trendline would strengthen the bear signal. Reversal of 13-week Twiggs Momentum below zero also signals a primary down-trend.

Dow Jones Asia Index

The ASX 200 found support at 5250. Recovery above 5350 and the descending trendline would suggest that the correction is over. But respect of resistance remains as likely and breach of 5250 would warn of a test of 5000/5050. Recovery of 21-day Twiggs Money Flow above zero would indicate short-term buying pressure.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

China in a cleft stick

The CCP is in a cleft stick over the protests in Hong Kong. Either they escalate and clear protestors with a massive show of force — which risks further escalation — or they wait patiently and let the protest run its course. Their problem is that there are more than 800 million Chinese citizens watching, who will take this as a precedent for future demonstrations in China. The shadow of Tiananmen Square will be replaced by the outcome of the current protests, whatever that is.

Hong Kong’s Hang Seng Index broke support at 24000, signaling a correction to 21000/22000. Reversal of 13-week Twiggs Money Flow below zero would warn of a bear market. Breach of support at 21000 would indicate a primary down-trend.

Hang Seng Index

China’s Shanghai Composite Index, however, broke resistance at 2340/2350, indicating an advance to 2440/2450. Rising 13-week Twiggs Money Flow continues to indicate medium-term buying pressure. I would advocate caution, given the situation in Hong Kong and a negative outlook for the economy.

Shanghai Composite Index

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

India’s Sensex is testing support at 26000. Bearish divergence on 13-week Twiggs Money Flow continues to warn of long-term selling pressure, but another trough above zero would suggest that buyers are regaining control. Failure of support would signal a correction to the primary trendline — around 25000 — while respect would indicate an advance to 28000*.

Sensex

* Target calculation: 27000 + ( 27000 – 26000 ) = 28000

Japan’s Nikkei 225 index retraced to test support at 16000, but respect of this level would be a bullish sign, suggesting a breakout above its 2013 high of 16300 with a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of a correction. Another 13-week Twiggs Money Flow would signal long-term buying pressure.

Nikkei 225

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