US Recovery on Track

The Leading Index calculated by the Philadelphia Fed has, in the past proved a reliable indicator of economic conditions. The latest value of 1.74% (December 2014) reflects a healthy recovery.

Philadelphia Fed Leading Index

Light vehicle sales also indicate consumer confidence. Annual sales to December 2014 of 16.8 million units are in the same realm as the buoyant conditions of 2004 to 2007.

Light vehicle sales

The Freight Transportation Services Index suggests that broader economic activity is also soaring.

Freight Transport Index

The S&P 500 successfully tested support at 2000, recovery above the declining trendline suggesting that the recent correction is over. Penetration of the descending trendline on 13-week Twiggs Money Flow would strengthen the signal. Breach of 1980/2000 is unlikely. Breakout above 2080 would indicate a fresh advance; follow-through above 2100 would confirm.

S&P 500 Index

* Target calculation: 2100 + ( 2100 – 2000 ) = 2200

CBOE Volatility Index is declining. Breakout below the recent triangle would indicate that risk has reverted to ‘Low’ from ‘Moderate’.

S&P 500 VIX

Europe

Dow Jones Euro Stoxx 50 index is consolidating above support at 3300 despite tensions between Greece and its Northern EMU partners. Respect of 3300 would indicate a fresh primary advance, with a long-term target of 3600*. Follow-through above 3425 would confirm.

Dow Jones Euro Stoxx 50

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

Asia

China’s Shanghai Composite Index found support at 3050, but declining 13-week Twiggs Money Flow warns of medium-term selling pressure. Failure to break resistance at 3400 is increasingly likely, and reversal below 3050 would warn of a test of the primary trendline at 2700. The stimulus effect of lower energy prices may cushion the fall but economic activity is declining and the PBOC faces a number of challenges.

Shanghai Composite Index

Japan’s Nikkei 225 Index has benefited from aggressive monetary expansion by the BOJ and is testing resistance at its 2007 high of 18000. Rising 13-week Twiggs Momentum reflects a healthy up-trend. Breakout above 18000 would signal another primary advance, with a target of 20000*.

Nikkei 225 Index

* Target calculation: 18000 + ( 18000 – 16000 ) = 20000

Long-term momentum of India’s SENSEX has been slowing since mid-2014. A fall below zero is unlikely, but would warn of a trend reversal. Respect of the secondary rising trendline would suggest another test of 30000, while breach would test primary support at 26500.

SENSEX

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

Australia

Australia’s ASX 200 is retracing to test its new support level at 5660. Respect would confirm a fresh primary advance. 13-Week Twiggs Money Flow holding above the zero line indicates medium-term buying pressure. Breakout above the descending flag would signal another advance, with a target of 6150*. Failure of support is unlikely.

ASX 200

* Target calculation: 5650 + ( 5650 – 5150 ) = 6150