War in Europe

Vladimir Putin has escalated the conflict in Eastern Ukraine with new incursions of tanks backed with artillery, anti-aircraft missile systems and up to 15,000 Russian troops. Intent on seizing as much territory as possible, he is banking on the US/European coalition responding with another slap on the wrist. Each weak response has only made Putin bolder. But where he may miscalculate is that the coalition is aware that its “stick-and-carrot” policy has failed and will be looking for a new approach.

Willingness of the Europeans to endure immediate economic pain in the belief that this will avert a long-term calamity is yet to be tested. Success will depend on France, Spain and Italy’s support for their Northern and Central European neighbours, who face a more immediate threat.

A significant step-up in sanctions is likely and the initial response from European markets will be negative. Sanctions are a two-edged sword and likely to hurt Europe almost as much as they do Russia. But NATO rearmament in the medium-term would somewhat offset the initial cost. Never underestimate the stimulus effect of war on local industry — provided the war is fought outside one’s borders

Germany’s DAX is running into stiff resistance as it approaches 9750. And 13-week Twiggs Money Flow below zero warns of selling pressure, threatening a reversal. Retreat below 9250 would strengthen the signal and failure of support at 8900/9000 would confirm a primary down-trend.

DAX

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

Dow Jones Euro Stoxx 50 reversal below 3100 and 13-week Twiggs Money Flow below zero would add further weight to the (bear) signal.

Dow Jones Euro Stoxx 50

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

The S&P 500, unfazed by recent developments in Europe, broke resistance at 2000 to signal an advance to 2100*. A 21-Day Twiggs Money Flow trough above zero indicates rising (medium-term) buying pressure. Reversal below 1990 is unlikely, but would warn of another correction.

S&P 500

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

CBOE Volatility Index (VIX), shown here on a ten-year chart, indicates low risk typical of a bull market.

S&P 500 VIX

Shanghai Composite Index, responding to PBOC stimulus, is testing resistance at 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout would confirm a primary up-trend, signaling an advance to 2500*. Respect of resistance is less likely, but would suggest further consolidation.

Shanghai Composite Index

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

The ASX 200 is testing resistance at 5650. Continued strength in US and Chinese stocks would improve the chance of an ASX 200 breakout, suggesting an advance to 5850*. Bearish divergence on 13-week Twiggs Money Flow — shown here on a monthly chart — continues to warn of long-term selling pressure. But failure to cross below zero would negate this and completion of another trough above zero would indicate that buyers are back in control. Reversal below 5450 is unlikely, but would warn of a test of primary support.

ASX 200

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

Hang Seng leads Asian recovery

Hong Kong’s Hang Seng Index broke its 2010 high at 25000, confirming a primary advance and offering a target of 27000*. Rising 13-week Twiggs Money Flow signals continued buying pressure. Reversal below 24000 is unlikely, but would warn of a correction to the rising trendline.

Hang Seng Index

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

China’s Shanghai Composite Index continues to test resistance at 2250. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2150 is unlikely, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

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

India’s Sensex is retracing to test support at 26000. Respect would confirm the target of 27000*. Declining 13-week Twiggs Money Flow continues to warn of selling pressure. Respect of the zero line would indicate that buyers have taken control, while a fall below zero would warn of a correction. Penetration of the secondary trendline is unlikely, but would indicate a correction to the primary trendline.

Sensex

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

Japan’s Nikkei 225 index recovered above 15500, suggesting continuation of the advance. Expect resistance between 16000 and 16300. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure, but respect of the zero line would indicate that buyers have taken control. Reversal below 14800 is unlikely, but would warn of a test of primary support at 14000.

Nikkei 225

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

China leads Asian recovery

Hong Kong’s Hang Seng Index is testing its 2010 high at 25000. Breakout would confirm a primary advance, with a target of 27000*. A 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Reversal below 24000 is unlikely, but would warn of a correction to the rising trendline.

Hang Seng Index

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

China’s Shanghai Composite Index is testing resistance at 2250. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2150 is unlikely, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

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

India’s Sensex recovered above 26000, offering a target of 27000*. Declining 13-week Twiggs Money Flow continues to warn of selling pressure, but respect of the zero line and recovery above 10% would indicate that buyers have taken control. Reversal below the secondary trendline is unlikely, but would indicate a correction to the primary trendline.

Sensex

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

Dow Jones Japan Index is testing resistance at 86/87 on the weekly chart. Breakout would suggest a primary advance. Reversal below 82 is unlikely, but would warn of a test of primary support at 74.

Dow Jones Japan Index

China strengthens but India, Japan face selling pressure

China’s Shanghai Composite Index overcame resistance at 2150/2200 and is headed for a test of 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 2250 would confirm a primary up-trend. Reversal below 2150 is unlikely at present, but would warn of another test of primary support at 1990/2000. Stimulatory measures by the PBOC may lift China’s economy in the medium-term, but are likely to prove unsustainable in the long-term.

Shanghai Composite Index

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

Declining 13-week Twiggs Money Flow on India’s Sensex continues to warn of selling pressure. Breach of support at 25000 would indicate a correction to the primary trendline. A 13-week Twiggs Money Flow trough above zero, however, would suggest another advance. Breakout above 26000 would confirm.

Sensex

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

Japan’s Nikkei 225 broke support at 15000, but Monday’s recovery warns of a bear trap. Recovery above 15500 would suggest a rally to 16000*. Reversal below 15000, however, would warn of a test of primary support at 14000. Decline of 13-week Twiggs Money Flow below zero would strengthen the signal.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

Europe tests primary support

Summary:

  • Europe threatens reversal to a down-trend.
  • S&P 500 finds support.
  • VIX continues to indicate a bull market.
  • China’s Shanghai Composite encounters selling pressure.
  • ASX 200 experiences a secondary correction.

Dow Jones Europe Index is testing the primary trendline and support at 315. 13-Week Twiggs Momentum below zero already warns of a primary down-trend. Breach of primary support at 315 would confirm. Respect of primary support and recovery above 330, however, would suggest that the primary trend is intact.

Dow Jones Europe Index

Germany’s DAX continues to test primary support at 9000. A long tail on Friday suggests short-term support. Failure of support would warn of a decline to 8000*, while respect would suggest another test of 10000.

DAX

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

The S&P 500 found support at 1900 and recovery above 1950 would indicate another advance. The latest decline on 13-week Twiggs Money Flow is relatively small and recovery above its July high would suggest that buyers have taken control. Failure of 1900, however, would warn that the primary trend is slowing.

S&P 500

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

CBOE Volatility Index (VIX) spiked upwards, to between 16 and 17, but remains low by historical standards and continues to suggest a bull market.

S&P 500 VIX

China’s Shanghai Composite Index encountered selling pressure below resistance at 2250, with tall wicks/shadows on the last two weekly candles and a sharp fall in 13-week Twiggs Money Flow. Reversal below 2150 would warn of another test of primary support at 1990/2000. Follow-through above 2250, however, would confirm a primary up-trend.

Shanghai Composite

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

The ASX 200 is heading for a test of support at 5350/5400 and the primary trendline. Direction will largely be influenced by the US and Chinese markets, but reversal of 13-week Twiggs Money Flow below zero — after long-term bearish divergence — would warn of strong selling pressure. Recovery above 5550 is unlikely at present, but would suggest another advance. Reversal below 5050 is also unlikely, but would signal a trend change.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Asian tigers and the PBOC

Asian stock markets are lifting on the prospect of increased trade with mainland China. Hong Kong’s Hang Seng Index broke long-term resistance at 24000, signaling a primary advance. But first expect retracement to test the new support level. Respect of 24000 would confirm the target of 27000*. A 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Reversal below 24000 is unlikely, but would warn of a correction to the rising trendline.

Hang Seng Index

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

Singapore’s Straits Times Index is also retracing after breaking resistance at 3300. Follow-through above 3400 would confirm the target of 3600*. Recovery of 13-week Twiggs Momentum above zero suggests a primary up-trend. Reversal below 3200 is unlikely, but would warn of another test of primary support at 3000.

Straits Times Index

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

China’s Shanghai Composite Index signals a primary up-trend after breaking resistance at 2150/2180, but I would wait for confirmation from a follow-through above resistance at 2250. The PBOC is aggressively injecting liquidity to revive a flagging economy. It may succeed in lifting the economy in the medium-term, but is not sustainable in the long-term and could well aggravate the situation. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 2250 would confirm a primary up-trend. Reversal below 2150 is unlikely at present, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

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

India’s Sensex retraced to support at 25500, but is again testing resistance at 26000. Breakout would signal an advance to 27000*. Bearish divergence on 13-week Twiggs Money Flow indicates long-term selling pressure, but respect of the zero line (recovery above 10%) would suggest that buyers have taken control. Breach of 25000 is unlikely, but would warn of a correction to the primary trendline.

Sensex

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

Japan’s Nikkei 225 is retreating after a false break of resistance at 15500. Expect a test of support at 15000. Narrow consolidation normally ends in continuation of the trend; upward breakout would indicate a rally to 16000*. Declining 13-week Twiggs Money Flow, however, indicates medium-term selling pressure. Reversal below 15000 would warn of a test of primary support at 14000.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

Europe leads markets lower

Summary:

  • Europe retreats as the Ukraine/Russia crisis escalates.
  • S&P 500 displays milder selling pressure and the primary trend remains intact.
  • VIX continues to indicate a bull market.
  • China’s Shanghai Composite is bullish in the medium-term.
  • ASX 200 may experience a secondary correction, but the primary trend displays buying support.

European leaders are waking up to the seriousness of the menace posed by Russia in the East, summed up in a recent Der Spiegel editorial:

Europe, and we Germans, will certainly have to pay a price for sanctions. But the price would be incomparably greater were Putin allowed to continue to violate international law. Peace and security in Europe would then be in serious danger.

Vladimir Putin will not alter course because of a light slap on the wrist. President Obama is going to have to find Teddy Roosevelt’s “big stick” — misplacement of which is largely responsible for Russia’s current flagrant disregard of national borders. And Europe is going to have to endure real pain in order to face down the Russian threat in the East. Delivery of French Mistral warships, for example, would show that Europe remains divided and will encourage the Russian bear to grow even bolder.

Russian Deputy Prime Minister Dmitry Rogozin said, however, that he doubted France would cancel the deal, despite coming under pressure from other Western leaders: “This is billions of euros. The French are very pragmatic. I doubt it [that the deal will be canceled].”
The Moscow Times

The whole of Europe is likely to have to share the cost of cancelling deals like this, but it is important to do so and present a united front.

Markets reacted negatively to the latest escalation, with Dow Jones Europe Index falling almost 6% over the last month. 13-Week Twiggs Momentum dipped below zero after several months of bearish divergence, warning not necessarily of a primary down-trend, but of a serious test of primary support at 315. Respect of 325 and the rising trendline would reassure that the primary trend is intact.

Dow Jones Europe Index

The S&P 500 displays milder selling pressure on 13-week Twiggs Money Flow and the correction is likely to test the rising trendline and support at 1850/1900, but not primary support at 1750. Respect of the zero line by 13-week Twiggs Money Flow would signal a buying opportunity for long-term investors. Recovery above 2000 is unlikely at present, but breakout would offer a (long-term) target of 2250*.

S&P 500

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

CBOE Volatility Index (VIX) spiked upwards, but remains low by historical standards and continues to suggest a bull market.

S&P 500 VIX

China’s Shanghai Composite Index broke resistance at 2150, suggesting a primary up-trend, but I will wait for confirmation from a follow-through above 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2050 is unlikely at present but would warn of another test of primary support at 1990/2000. The PBOC is simply kicking the can down the road by injecting more liquidity into the banking system. That may defer the eventual day of reckoning by a year or two, but it cannot be avoided. And each time the problem is deferred, it grows bigger. So the medium-term outlook may be improving, but I still have doubts about the long-term.

Shanghai Composite

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

The ASX 200 is likely to retrace to test the rising trendline around 5450, but 13-week Twiggs Money Flow holding above zero continues to indicate buying support. Recovery above 5600 is unlikely at present, but would present a target of 5800*. Reversal below 5050 would signal a trend change, but that is most unlikely despite current bearishness.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Asia: Sleeping tigers awaken

Hong Kong’s Hang Seng Index broke long-term resistance at 24000, signaling a primary advance with an intermediate target of 27000*. The recent 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Expect retracement to test the new support level. Reversal below 24000 is unlikely, however, and would warn of a correction to the rising trendline.

Hang Seng Index

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

Singapore’s Straits Times Index likewise broke resistance at 3300, signaling a primary advance to 3600*. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Again, expect retracement to test the new support level, but reversal below 3200 is unlikely and would warn of another test of primary support at 3000.

Straits Times Index

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

China’s Shanghai Composite Index broke resistance at 2150 as the PBOC aggressively injects bank credit to revive a flagging economy. This may lift the medium-term outlook, but is not sustainable in the long-term and could well aggravate the eventual contraction. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 2250 would confirm a primary up-trend. Reversal below 2100 is unlikely at present, but would warn of another test of primary support at 1990/2000.

Shanghai Composite Index

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

India’s Sensex is retracing to test the new support level at 26000. Breach would indicate a test of 25000. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Failure of support at 25000 would warn of a correction to the primary trendline at 23000. Respect of (or recovery above) 26000, however, would offer a target of 27000*.

Sensex

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

Japan’s Nikkei 225 is testing 15500. Breakout from the consolidation of recent weeks would indicate a rally to 16000*. Oscillation of 13-week Twiggs Money Flow above zero indicates healthy long-term buying pressure. Reversal below 15000 is unlikely, but would warn of another test of primary support at 14000.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

Sleeping tigers: Hang Seng and Straits Times threaten breakout

A monthly chart shows Hong Kong’s Hang Seng Index headed for a test of long-term resistance at 24000. A 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Breakout above 24000 would signal a primary advance with a medium-term target of 27000*. Reversal below 21000 and the rising trendline is unlikely, but would warn of reversal to a primary down-trend.

Hang Seng Index

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

Singapore’s Straits Times Index is testing resistance at 3300. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 3300 would signal a primary advance to 3600*. Respect of resistance is less likely, but reversal below 3200 would warn of another test of primary support at 3000.

Straits Times Index

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

China’s Shanghai Composite Index remains on an upward path after the PBOC lifted bank credit. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Follow-through above 2090/2100 would suggest another test of 2150. Failure of primary support at 1990/2000 is unlikely at present, but would warn of a decline to 1850*.

Shanghai Composite Index

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

India’s Sensex respected support at 25000. Follow-through above 25700 would signal another test of resistance at 26000/26200. Breakout would offer a target of 27000*. Oscillation of 21-day Twiggs Money Flow around zero warns of hesitancy. Reversal below 25000 is less likely, but would warn of a correction to the primary trendline, around 23000.

Sensex

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

Japan’s Nikkei 225 is finding support at 15000/15200. Declining 21-day Twiggs Money Flow shows medium-term selling pressure typical of a consolidation; respect of zero would suggest another advance. Recovery above 15500 would confirm, offering a target of the December 2013 high at 16300. Reversal below 15000, however, would warn of another test of primary support at 14000.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

China dousing the flames with gasoline

The PBOC is dousing the flames with gasoline, adding further credit to prevent a slow-down. The longer this goes on, the more precarious their situation will become.

Shanghai Composite Index lifted above 2060/2065, indicating continuation of the rally to 2090. Rising 21-day Twiggs Money Flow troughs above zero signal strong medium-term buying pressure. Breakout above 2090/2100 would suggest another test of 2150. Failure of primary support at 1990/2000 is unlikely, but would warn of a decline to 1850*.

Shanghai Composite Index

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

India’s Sensex retraced to test support at 25000 after reaching its target of 26000. Respect would signal continuation of the advance, but 21-day Twiggs Money Flow below zero warns of selling pressure. Breach of support would warn of a correction to the primary trendline, around 23000.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

The weekly chart of Japan’s Nikkei 225 (21-day Twiggs Money Flow) shows the index consolidating below 15500. 13-Week Twiggs Money Flow holding above zero signals long-term buying pressure. Breakout above 15500 would test the December 2013 high at 16300. Reversal below 15000 is less likely, but would warn of another test of primary support at 14000.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

Market bullish despite Europe bank worries

  • S&P 500 advance to 2000 likely.
  • Europe warns of correction.
  • China further consolidation expected.
  • ASX 200 hesitant.

US market sentiment remains bullish, while Europe hesitates on Portuguese banking worries. As Shane Oliver observed: “Could there be a correction? Yes. Is it start of new bear mkt? Unlikely. Bull mkts end with euphoria, not lots of caution like there is now…”

The S&P 500 found support between 1950 and 1960, as evidenced by long tails on the last two candles, and is likely to advance to the psychological barrier of 2000. 21-Day Twiggs Money Flow recovery above the descending trendline would confirm that short-term selling pressure has ended. Expect retracement at the 2000 level, but short duration or narrow consolidation would suggest another advance. Reversal below 1950 is unlikely, but would warn of a correction to 1900 and the rising trendline.

S&P 500

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

CBOE Volatility Index (VIX) remains at low levels indicative of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 broke support at 3200/3230, warning of a correction to the primary trendline at 3000. Solvency doubts over struggling Portuguese Banco Espirito Santo have roiled European markets. Descent of 21-Day Twiggs Money Flow below zero indicates medium-term selling pressure. Recovery above 3230 is unlikely at present.

Dow Jones Euro Stoxx 50

* Target calculation: 3150 + ( 3150 – 3000 ) = 3300

China’s Shanghai Composite Index displays strong medium-term buying pressure, with 21-day Twiggs Money Flow troughs above zero. Follow-through above 2060 would indicate another test of 2090. Breach of primary support is unlikely at present, but would signal a decline to 1850*. Further ranging between 2000 and 2150 is expected — in line with a managed “soft landing”.

Shanghai Composite

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

The ASX 200 found support at 5450 and appears headed for another test of resistance at 5550. 21-Day Twiggs Money Flow oscillating around zero, however, continues to indicate hesitancy. Reversal below 5450 would signal another test of 5350, while breakout above 5550 would suggest a long-term advance to 5800*.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Commodities weak except for crude

  • Chinese stocks test long-term support
  • Commodities weaken
  • Crude oil remains high

China’s Shanghai Composite Index continues to test long-term support. 13-Week Twiggs Momentum holding below zero suggests continuation of the primary down-trend.

Shanghai Composite Index

Commodity prices are weakening, with Dow Jones-UBS Commodity Index breaking support at 133 to warn of another test of long-term support at 122/124. Reversal of 13-week Twiggs Momentum below zero would strengthen the signal.

Dow Jones UBS Commodities Index

Crude oil remains strong. The chart below plots WTI Light Crude over the consumer price index. The ratio is well above the historical average and is acting as a significant hand-brake on the post-GFC recovery.

Nymex WTI Crude

Considering the holes made in GDP (the green line) by crude oil spikes over the last 40 years, you can understand why Janet Yellen is reluctant to raise interest rates despite falling unemployment.

Nymex WTI Crude

Asia: India leads but China & Japan improving

China’s Shanghai Composite Index retraced to test the new support level at 2050. A 21-day Twiggs Money Flow trough above zero signals strong medium-term buying pressure. Respect of support is likely and would signal a rally to 2090/2100. Failure is unlikely, but would test primary support at 1990/2000.

Shanghai Composite Index

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

Divergence on Japan’s Nikkei 225 (21-day Twiggs Money Flow) warns of medium-term selling pressure and another test of support at 15000. Respect of 15000 would confirm a rally to 16000*. Failure is unlikely, but would warn of another test of primary support at 14000.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 14000 ) = 16000

India’s Sensex reached its target of 26000. Expect retracement to test the new support level at 25700/26000, but a 21-day Twiggs Money Flow trough above zero signals strong buying pressure. Breach of support is unlikely, but would warn of a correction to 25000. Further advances are likely, with a medium-term target of 27000.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

Enough to make Gazputin grin

  • Chinese stocks drift lower
  • Crude oil rising
  • Other commodities weak

China’s Shanghai Composite Index continues to drift lower on the long-term, monthly chart.

Shanghai Composite Index

Apart from crude oil, commodity prices have fared little better. But crude plays such a dominant role in most commodity indices that they appear more buoyant. Dow Jones-UBS Commodity Index rallied to 140 before retracing for another test of primary support. Oscillation of 13-week Twiggs Momentum around zero, however, does not suggest a significant trend.

Dow Jones UBS Commodities Index

Crude oil is doing a lot better, heading for another test of $110/barrel on the back of supply threats from geo-political tensions. The ascending triangle is very large, but breakout would suggest a long-term target of the 2008 high at $145*.

Brent Crude and Nymex Crude

* Target calculation: 110 + ( 110 – 75 ) = 145

…Enough to make even Gazputin grin.

Vladimir Putin

Read more at Bloomberg, June 2013: Gazprom’s Demise Could Topple Putin

A good week for the S&P 500 but not the ASX

Summary:

  • Good week for US markets.
  • China continues to threaten further down-side.
  • The ASX 200, pulled in opposite directions, is range bound for the present.
  • Momentum strategies require persistence.

The S&P 500 broke through 1950 and is expected to test the next resistance level at 2000*. Rising 21-day Twiggs Money Flow signals medium-term buying pressure. Reversal below 1925 is unlikely at present but would warn of a correction.

S&P 500

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

The CBOE Volatility Index (VIX) continues its downward path, indicating low risk typical of a bull market.

S&P 500 VIX

The Shanghai Composite Index rebounded Friday after a tough week and continues to test primary support at 1990/2000. Breach of support would signal a decline to 1850*. 21-Day Twiggs Money Flow oscillating above zero indicates buying support; a fall below zero would suggest selling pressure. The primary trend is expected to continue its downward path, but this is a managed descent and an abrupt fall seems unlikely.

Shanghai Composite

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

After a strong surge on Thursday the ASX 200 retreated below 5450 on Friday, suggesting another test of support at 5400. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Breach of support is likely and would indicate a correction to 5300. Recovery above 5500 is unlikely at present, but the long-term trend remains upward.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Resist the urge to avoid discomfort

Momentum stocks have suffered a fair degree of turbulence since April, after a strong first quarter. Investors unfortunately have to endure periods like this, when the market appears hesitant or lacks direction, in much the same the same way as travelers can expect turbulence during an air flight. It is important is to resist the urge to avoid discomfort by exiting positions. Enduring uncomfortable parts of the journey are necessary if you want to reach your intended destination. Our research on both the ASX and S&P 500 has shown that attempting to time secondary movements in the markets does not enhance but erodes performance: the average (re-)entry price is higher than the average exit price after accounting for brokerage.

A basic rule of thumb in investing is that investors need to endure higher volatility in order to achieve higher returns. If your investment time frame is long-term, it is important to focus on the end result and not be overly concerned by weekly fluctuations.

Asian stocks revive

India’s Sensex is retracing to test the new support level at 25000. Respect would confirm an advance to 26000*. The primary trend is up and rising 21-day Twiggs Money Flow suggests buying pressure. Breach of 25000 is unlikely, but would warn of a test of 24000.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

China’s Shanghai Composite Index is headed for another test of 2150 after breaking resistance at 2050. A 21-day Twiggs Money Flow trough at zero signals medium-term buying pressure. Breakout above 2150 is unlikely, but would complete a triple-bottom reversal. Reversal below primary support at 1990/2000 also appears unlikely at present, but would signal a decline to 1850*.

Shanghai Composite Index

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

Japan’s Nikkei 225 found resistance at 15000/15200 on the weekly chart. A 13-week Twiggs Money Flow trough above zero signals long-term buying pressure. Breakout above 15200 would target 16000. Reversal below 14800 is unlikely, but would signal a test of primary support at 14000.

Nikkei 225

Hong Kong’s Hang Seng Index is headed for a test of long-term resistance at 24000 on the monthly chart. A 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Breakout above 24000 would signal a primary advance to 27000*. Reversal below 21000 and the rising trendline is most unlikely, but would warn of reversal to a primary down-trend.

Hang Seng Index

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

Asia: India bullish but China weak

India’s Sensex found support at 24000. Recovery above 25000 would signal a fresh advance to 26000*. Breach of support is unlikely, but would warn of further correction. The primary trend is up and bearish divergence on 13-week Twiggs Money Flow indicates nothing more than medium-term selling pressure from the present correction.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

China’s Shanghai Composite Index continues to test primary support at 2000. Follow-through below 1990 would signal a decline to 1850*. Reversal of 13-week Twiggs Money Flow below zero signals medium-term selling pressure. Recovery above 2150 is unlikely, but would complete a triple-bottom reversal.

Shanghai Composite Index

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

Japan’s Nikkei 225 rebounded off primary support and is testing resistance at 15000. Follow-through above 15200 would signal another test of 16000. Recovery of 13-week Twiggs Money Flow above 20% would confirm long-term buying pressure. Reversal below 14000 is unlikely, but would signal a primary down-trend.

Nikkei 225

China Japan threaten further decline

China’s Shanghai Composite Index is testing primary support at 2000. Follow-through below 1990 would signal a decline to 1850*. Reversal of 21-day Twiggs Money Flow below zero would signal medium-term selling pressure. Respect of primary support at 2000, however, would suggest another rally to 2150.

Shanghai Composite Index

* Long-term target calculation: 2000 – ( 2150 – 2000 ) = 1850

Japan’s Nikkei 225 is testing primary support at 14000. 21-Day Twiggs Money Flow below zero indicates medium-term selling pressure. Follow-through below 13900 would confirm a primary down-trend. Respect of primary support is unlikely, but would indicate a rally to 15000.

Nikkei 225

* Target calculation: 14000 – ( 15000 – 14000 ) = 13000