What a difference a week makes

Summary:

  • S&P 500 advances toward 2000.
  • China respects primary support.
  • ASX 200 rallies.
  • Understanding momentum.

Market sentiment shifted significantly to the bull side after some solid employment numbers. There are still concerns about low interest rates across the US and other major economies, but these policies are likely to continue — with corporate earnings remaining buoyant — for the foreseeable future. And as Eddy Elfenbein observed: “…market corrections solely due to valuation are fairly rare. If the market’s dropping, earnings usually are too.”

The S&P 500 is advancing towards the psychological barrier of 2000. Weekly (13-week) Twiggs Money Flow recovered above its descending trendline and Daily (21-day) is trending higher, signaling medium-term buying pressure. Expect retracement at the 2000 level, but short duration or narrow consolidation would indicate continued buying pressure and another advance. Reversal below 1950 is unlikely, but would warn of a correction to the rising trendline.

S&P 500

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

Buoyed by Fed monetary policy, CBOE Volatility Index (VIX) is at extremely low levels, indicative of a bull market.

S&P 500 VIX

The Shanghai Composite Index respected primary support at 1990/2000 and rising Twiggs Money Flow indicates medium-term buying pressure. Follow-through above 2080 would indicate another test of 2150. Further ranging between 2000 and 2150 is expected — in line with a managed “soft landing”. Breach of primary support is unlikely at present, but would signal a decline to 1850*.

Shanghai Composite

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

The ASX 200 is headed for another test of resistance at 5550 while an up-turn on 13-week Twiggs Money Flow suggests medium-term buying pressure. Twiggs Money Flow has been descending for some time, indicating long-term selling pressure, but failure to breach the zero line suggests buying support and completion of another trough above zero — with a rise above 20% — would confirm the resumption of long-term buying pressure. Breakout above 5550 would offer a long-term target of 5850*. Reversal below support at 5350 is unlikely, but would warn of a down-trend.

ASX 200

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