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

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

Another bear trap?

Bellwether transport stock Fedex found support at $154, the long tail and rising 13-week Twiggs Money Flow indicating buying pressure. Expect a test of $165. Reversal below $150 is unlikely, but would warn of a test of primary support at $130. Continuation of the primary up-trend signals improvement for the broad economy.

Fedex

* Target calculation: 165 + ( 165 – 150 ) = 180

The S&P 500 is testing its new resistance level at 1900/1910. Last week’s long tail indicates short-term buying pressure but declining 13-week Twiggs Money Flow continues to warn of long-term selling pressure. Recovery above 1910 would suggest that the correction is over, while penetration of the descending trendline would strengthen the signal.

S&P 500

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

Someone asked why I felt the correction was over, when there are so many bearish signs on the charts. My answer in brief was:

  • Strong support on the Dow and S&P 500;
  • Breach of descending trendline on the ASX 200;
  • October sell-off nearing an end;
  • US reporting season has started and fund managers will revert to accumulation of stronger performing stocks.

I could have added that our market filters continue to indicate low to moderate risk.

I am also suspicious of breaks of support after the bear traps of 2010 and 2011.

S&P 500

Breaches are indicated by red arrows, recoveries by green.

S&P 500

Investors remain extremely skittish after the 2009 crash and likely to jump at shadows.

CBOE Volatility Index (VIX) has retreated below 20%, suggesting low risk typical of a bull market. Recovery above 20% is not likely, but a (significantly) higher trough would warn of rising risk.

VIX Index

The Nasdaq 100 rallied off support at 3700. Follow-through above 3900 would suggest another test of 4100. Recovery above 4000 and the descending trendline would strengthen the signal. Divergence on 13-week Twiggs Money Flow indicates mild selling pressure. Reversal below 3700 and the rising (secondary) trendline would warn of a test of primary support at 3400.

Nasdaq 100

* Target calculation: 3750 – ( 4100 – 3750 ) = 3400

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

US stocks: Broad selling pressure

The S&P 500 broke through support at 1900, offering a target of 1800*. Decline of 21-day Twiggs Money Flow below zero warns of medium-term selling pressure. Recovery above 1910 is unlikely at present, but would suggest a bear trap.

S&P 500

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

CBOE Volatility Index (VIX) broke above 20%, but still indicates moderate risk. A break above 30% would suggest elevated risk.

VIX Index

Dow Jones Industrial Average is testing support at 16300. Breach would indicate a test of the (primary) rising trendline. Bearish divergence on 13-week Twiggs Money Flow continues to warn of selling pressure. Recovery above 16500 is less likely, but would suggest another rally.

Dow Jones Industrial Average

The Nasdaq 100 broke support at 3850. Follow-through below 3750 would confirm a target of primary support at 3400*. Divergence on 13-week Twiggs Money Flow indicates selling pressure. Respect of support at 3750 is unlikely, but recovery above 3850 would suggest another rally.

Nasdaq 100

* Target calculation: 3750 – ( 4100 – 3750 ) = 3400

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

Market lifts despite weak global economy

Minutes of the September FOMC meeting highlight growing unease with the strong US Dollar and a weak global economy. The market read this as “low interest rates” and commenced a buying spree. Last year the quarter-end sell-off ended on October 9th after a 4.2% fall. This year’s correction fell 4.7%, lasting 13 days (so far) compared to 15 days in 2013.

Roberto Dominguez at NY Daily News reports:

“The start of earnings season, with companies including Costco and Alcoa reporting quarterly profits that beat forecasts, also helped push the S&P 500 to its biggest rally in a year.”

While Cullen Roche writes that the US fiscal deficit is shrinking:

“…tax receipts have surged by 7.7% year over year and are up 48% over the last 5 years. And while some of this is due to tax increases the vast majority is due to a healing private sector.”

Bellwether transport stock Fedex continues its primary up-trend, signaling improved economic activity.

Fedex

No doubt boosted by a falling outlook for crude oil.

Nymex and Brent Crude

With positive news about, we should be careful not to forget the Fed’s concern with a weak global economy. While this may drive oil prices even lower, the impact on international sales of major exporters will be closely watched.

S&P 500 recovery above 2000 would indicate the correction is over, while follow-through above 2020 would signal another advance. A 21-day Twiggs Money Flow trough above zero would signal a healthy up-trend. Reversal below 1925 is unlikely, but would test primary support at 1900/1910.

S&P 500

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

CBOE Volatility Index (VIX) retreated to 15%, indicating low volatility typical of a bull market.

VIX Index

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

S&P 500 breaks support

The S&P 500 broke through the lower border of the broadening wedge and the secondary trendline at 1965, indicating a correction. Expect support at 1900. Decline of 21-day Twiggs Money Flow below zero would strengthen the signal, while recovery above 25% (September high) would suggest that buyers are back in control.

S&P 500

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

CBOE Volatility Index (VIX) is close to 17%, but the low level continues to suggest a bull market.

VIX Index

Rising interest rates: Good or bad for stocks?

We are now at the September quarter-end, normally a volatile time for stocks. Expect selling pressure to increase over the next few weeks as investment managers sell off poor-performing stocks. Increased cash balances then enable them to take advantage of new opportunities as they present themselves. If the fundamental under-pinning of the market is sound, the market is likely to undergo a minor dip before resuming its advance. If not, and there are serious flaws, the sell-off could turn into a rout — as in 1987 and 2007.

At present the market appears sound, with none of our market indicators flagging elevated risk, and the bull market is likely to continue.

Bears cite the potential for an increase in US interest rates as a major threat to the US economy. The track record for the last 15 years suggests otherwise. The graph below compares percentage change in 10-year Treasury yields to the Wilshire 5000 Total Market Index (divided by 20 for purposes of comparison). The two tend to rise and fall in sync, with a 20% to 40% rise in the index accompanying a 1% increase in yields.

10-year Treasury yields v. Wilshire 5000 Total Market Index

The Fed tends to be conservative about raising interest rates (“doves” outnumber “hawks”) and is unlikely to raise rates until there is solid evidence of a recovery. So a rise in interest rates is more likely to be followed by a surge in stocks than a fall.

US stocks

The S&P 500 found significant support at 1965, the lower border of the broadening wedge. Monday’s long tail flags (short-term) buying pressure. Follow-through above 1990 would suggest a rally to test the upper border. Breach of 1965, however would indicate another correction. Decline of 21-day Twiggs Money Flow below zero would confirm, while recovery above its September high would suggest that buyers are back in control.

S&P 500

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

CBOE Volatility Index (VIX) is rising, but the low level continues to suggest a bull market.

VIX Index

Dow Jones Industrial Average found support at 16950 on the weekly chart. Long tails again flag buying pressure. Recovery above 17150 would suggest another advance, while follow-through above 17350 would confirm. Breach of support at 16950 is unlikely, but would warn of a correction. 13-Week Twiggs Money Flow reflects some hesitancy, but the long-term picture is bullish.

Dow Jones Industrial Average

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

S&P 500 broadening wedge

  • We are at the September quarter-end and can expect stock weakness to continue into October
  • The Dollar is rising
  • Gold and crude oil are falling
  • European stocks are bearish
  • Asian stocks are bearish despite China showing strength
  • US stocks reflect a bull market

Dow Jones Europe Index is testing primary support at 320. Breach would signal a down-trend. Follow-through below 315 would confirm. Penetration of the rising trendline and 13-week Twiggs Momentum peak below zero both strengthen the bear signal.

Dow Jones Europe Index

* Target calculation: 320 – ( 340 – 320 ) = 300

Dow Jones Asia Index broke primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Expect a test of support at 3000 (at the rising trendline). Reversal of 13-week Twiggs Momentum below zero would further strengthen the bear signal. Follow-through below 3000 would confirm a primary down-trend.

Dow Jones Asia Index

* Target calculation: 3100 + ( 3100 – 2800 ) = 3400

Shanghai Composite Index, however, continues to test resistance at 2350. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.

Shanghai Composite Index

Bear in mind that Dow Asia and Dow Europe are priced in USD and reflect strength in the US Dollar as well as weakness in local markets — though the two are closely connected.

The S&P 500 is consolidating around the 2000 level in a broadening wedge formation. Do not be surprised if the index rallies early next week, to test medium-term resistance at 2020. Fund managers are normally willing to support the market at quarter-end and lock in quarterly performance bonuses. But this is likely to be followed by weakness in October as they sell off non-performing stocks and increase cash holdings until new opportunities present themselves. Breakout below the broadening wedge — and penetration of both support at 1950 and the (secondary) rising trendline — would warn of a correction. A large volume spike from triple-witching hour on September 19th, however, has exaggerated weakness on Twiggs Money Flow. Breakout above 2020 would signal a fresh advance.

S&P 500

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

CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.

S&P 500 VIX

The ASX 200 is testing support at 5300/5350. Penetration of the rising trendline warns of a correction to 5000. Declining 13-week Twiggs Money Flow, below zero, after a long-term bearish divergence, also signals weakness. Breach of 5300 would confirm a test of 5000. Recovery above 5550 is unlikely, but would suggest another test of 5650.

ASX 200

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

Quarter-end turbulence

We are now approaching the September quarter-end, normally a volatile time for stocks. Investment managers tend to re-balance their portfolios after month-end, selling off poor performers and increasing cash balances to later take advantage of new opportunities. The result is that stocks tend to dip in October. If the fundamental under-pinning of the market is strong, they soon recover and continue on its merry way. But if there are serious flaws, the sell-off can turn into a rout — as in 1987 and 2007.

At present the market outlook appears sound and the bull market is likely to continue. I often use transport stock Fedex as a bellwether for the US economy. If the economy is robust, you can expect Fedex to display a solid up-trend. If weak, Fedex tends to lead the market lower. In November 2007 for example, on the monthly chart below, Fedex signaled a bear market several months ahead of the major indices. The present situation is quite the opposite, with the Fedex in a strong bull-trend, having recently respected support at $145. A 13-week Twiggs Money Flow trough above zero also suggests buying pressure. Economic activity is clearly improving.

Fedex

* Target calculation: 145 + ( 145 – 130 ) = 160

The S&P 500 break above 2010 proved to be a false break, with the market headed for a re-test of support at 1980. Breach would indicate another correction. Declining 21-day Twiggs Money Flow now indicates medium-term selling pressure; a fall below zero would warn of a primary down-trend.

S&P 500

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

CBOE Volatility Index (VIX) remains low, however, suggesting continuation of the bull market.

VIX Index

Dow Jones Industrial Average also retreated, testing its new support level at 17150. Reversal below 16950 would indicate a correction, while respect would suggest another advance. Declining 21-day Twiggs Money Flow also suggests medium-term selling pressure.

Dow Jones Industrial Average

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

My conclusion is that the bull market is sound, but likely to encounter some turbulence over the quarter-end. There may be a secondary correction, but respect of recent support levels would indicate a fresh advance.

S&P bullish but Asia, Europe weak

Weekly highlights:

  • Scotland votes “No” and the Pound rallies
  • Treasury yields (long-term) are rising and the Dollar strengthens
  • Gold and crude oil fall
  • European stocks remain bearish
  • Asian stocks also remain bearish despite Hong Kong/Shanghai breakout
  • US stocks still reflect a bull market

Stock markets

Dow Jones Europe Index is retracing after a weak rally that reached 335. Failure of support at 320 would signal a primary down-trend. Follow-through below 315 would confirm. A 13-week Twiggs Momentum peak below zero strengthens the bear signal.

* Target calculation: 320 – ( 340 – 320 ) = 300

Dow Jones Asia Index is testing primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Bearish divergence on 13-week Twiggs Momentum warns of a test of 3100. Breach of 3200 would signal a primary down-trend, while follow-through below 3100 would confirm.

* Target calculation: 3100 + ( 3100 – 2800 ) = 3400

The S&P 500 recovered above 2000 to signal a fresh advance. Follow-through above 2010 confirms a target of 2100*. Reversal below 1980 is unlikely. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.

S&P 500

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

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

S&P 500 VIX

The ASX 200 correction found support at 5300/5350. But 13-week Twiggs Money Flow below zero, after a long-term bearish divergence, warns of further weakness. Breach of 5300 would indicate a test of 5000. Recovery above 5550 is unlikely, but would suggest a fresh advance.

ASX 200

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

Dow, S&P 500 make new highs

Dow Jones Industrial Average followed through above 17150, confirming a primary advance to 18000*. Rising 21-day Twiggs Money Flow suggests buying pressure. Reversal below support at 16950 is most unlikely, but would warn of a correction.

Dow Jones Industrial Average

* Target calculation: 17150 + ( 17150 – 16350 ) = 17950

The S&P 500 similarly followed through above 2010, confirming a primary advance with a target of 2070*. Reversal below support at 1980 is most unlikely, but would warn of a correction.

S&P 500

* Target calculation: 1990 + ( 1990 – 1910 ) = 2070

CBOE Volatility Index (VIX) is now back at 12, continuing to indicate low risk typical of a bull market.

VIX Index

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

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

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

European ceasefire

Neil MacFarquhar reports in The New York Times:

After five months of intensifying combat that threatened to rip Ukraine apart and to reignite the Cold War, the Ukrainian government and separatist forces signed a cease-fire agreement on Friday that analysts considered highly tenuous in a country that remains a tinderbox…..

The agreement resembles, almost verbatim, a proposal for a truce issued by President Petro O. Poroshenko in June.

It includes amnesty for those who disarm and who did not commit serious crimes, and the exchange of all prisoners. Militias will be disbanded, and a 10-kilometer buffer zone — about six miles — will be established along the Russian-Ukrainian border. The area will be subject to joint patrols. The separatists have agreed to leave the administrative buildings they control and to allow broadcasts from Ukraine to resume on local television….

There appears plenty of skepticism as to whether the ceasefire will hold… and whether Russian forces will withdraw, but markets welcomed the announcement.

Germany’s DAX is testing resistance at 9700/9800. Breakout would indicate a fresh advance, while follow-through above 10000 would confirm a target of 11000. Recovery of 13-week Twiggs Money Flow above zero suggests selling pressure is easing. Retreat below 9250, however, would warn of another test of primary support at 9000.

DAX

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

The S&P 500 rallied above 2000. Follow-through above 2010 would confirm an advance to 2100*. Sideways movement on 21-day Twiggs Money Flow, however, suggests further consolidation. Reversal below 1990 is unlikely, but would warn of another correction.

S&P 500

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

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

S&P 500 VIX

Shanghai Composite Index, responding to PBOC stimulus, broke resistance at 2250 to signal a primary up-trend. Rising 13-week Twiggs Money Flow indicates accelerating buying pressure. Target for the advance is 2500*. Reversal below 2250 is unlikely, but would suggest further consolidation between 2000 and 2250.

Shanghai Composite Index

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

The ASX 200 broke short-term support at 5620, but with both US and Chinese markets entering a bull phase retracement is likely to be short-lived. Breakout above 5680 would confirm an advance to 5850*. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure, but a trough above zero would indicate that buyers are back in control. Reversal below 5540 is unlikely, but would warn of a test of primary support.

ASX 200

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