European stocks unfazed by upcoming election

Dow Jones Euro Stoxx 50, reflecting the top 50 stocks in the Euro monetary area, appears unfazed by the upcoming French elections. The index has undergone a shallow retracement over the last 3 weeks, while rising Twiggs Money Flow indicates long-term buying pressure.

Dow Jones Euro Stoxx 50

Polls have proved notoriously unreliable in the last year and I will not venture to comment on the election outcome. But breakout above 3500 is likely if Le Pen fails in her bid and would signal another advance.

Cable drags Footsie lower

Pound Sterling strengthened this week on news of an early election. Despite Brexit fears the Cable, as it is commonly referred to by traders, has been strengthening for several months. Crossover of 13-week Momentum above zero suggests a primary up-trend. Breakout above 1.20 against the Euro would confirm the signal.

Pound Sterling (GBPEUR)

The FTSE 100 retreated from resistance at 7400. Rising troughs on Twiggs Money Flow indicate long-term buying pressure but reversal below 7100 would warn of a correction.

FTSE 100

* Target: 7400 + ( 7400 – 6700 ) = 8100

ASX 200 advance slows as iron ore falls

Iron ore found support at $60.

Iron ore

The ASX 300 Metals & Mining Index has taken some encouragement from the rally, with support at 2850. But bear rallies are normally short in duration and reverse sharply.

ASX 300 Metals & Mining

The ASX 200 advance has slowed after the recent sell-off in the resources sector. But rising Twiggs Money Flow still signals buying pressure and another attempt at 6000 seems likely.

ASX 200

* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000

ASX 300 Banks, the largest sector in the broad index, is consolidating above its new support level at 9000. Declining Twiggs Money Flow warns of medium-term selling pressure. Reversal below 8900 is unlikely but would warn of a correction.

ASX 300 Banks

Bank exposure to residential mortgages is the Achilles heel of the Australian economy and APRA is likely to keep the pressure on banks to raise lending standards and increase capital reserves, which would lower return on equity.

China dips while India strengthens

Shanghai’s Composite Index is experiencing selling pressure, with Twiggs Money Flow crossing below zero for the first time since 2014. Reversal below 3100 would warn of a primary down-trend.

Shanghai Composite Index

* Target medium-term: May 2016 low of 2800

India’s Sensex is consolidating in a bullish narrow band below major resistance at 30000. Rising Twiggs Money Flow indicates medium-term buying pressure. Breakout is likely and would offer a target of 32000*.

Sensex Index

* Target medium-term: 29000 + ( 29000 – 26000 ) = 32000

Television networks resist gambling ad ban

From Lucy Battersby at the Sydney Morning Herald:

Communications Minister Mitch Fifield is reportedly considering a ban on gambling ads screening from the start to finish of sporting events.

Television networks are increasingly reliant on revenue from the gambling industry, which spent nearly $150 million on wagering and lottery advertisements in 2016, an increase of 19 per cent on 2015.

Networks have been screaming for cuts to their licence fees in the May federal budget, to make up for declining ad revenue….

Threats by networks to shut down free-to-air sports should be taken with a pinch of salt. Gambling has recently been a major advertiser but the networks survived for many years without them.

Buy out of advertising — as in the 1987 replacement of tobacco advertising with health messages — seems a good option compared to cutting license fees. Positive health and related (especially alcohol and gambling) messages can help shape better attitudes in society, with long-term benefits from lower medical and welfare costs.

Source: Television networks warn gambling ad ban may shut down free-to-air sports

IMF predicts Australian GDP rise but iron ore drops

From Latika Bourke at Sydney Morning Herald:

Australian economy to boom as unemployment drops, IMF

…The IMF predicts Australia’s economy will grow by 3.1 per cent in 2017 and 3 per cent in 2018. This is better than the most recent forecast by the Australian Treasury and released by the Australian government in December last year, which predicted GDP would “pick up to 2¾ per cent in 2017-18 as the detraction from mining investment eases.”

Broad projections like those of the IMF offer little comfort. The very next headline warns of falling iron ore prices:

From Timothy Moore at The Age:

Spot iron ore extends retreat, sliding another 4.6pc

The spot price of iron ore now has fallen one-third from its February peak, as the slide into a bear market turns into an accelerating rout.

At its Tuesday fix, ore with 62 per cent iron content slid $US3.05, or 4.6 per cent, to $US63.20 a tonne, according to Metal Bulletin. The price has tumbled more than 20 per cent so far this month….

Breach of the rising trendline warns that spot iron ore is likely to test primary support at 50. Reversal of 13-week Twiggs Momentum below zero warns of a primary down-trend.

Iron Ore Spot Price

Falling resources stocks are dragging the ASX 200 lower. The up-trend is still intact but expect strong resistance at 6000. Reversal below 5680 would signal reversal to a down-trend.

ASX 200

European advance continues

Dow Jones Euro Stoxx 50, reflecting the top 50 stocks in the Euro monetary area, is consolidating in a narrow band below 3500. Rising Twiggs Money Flow indicates strong buying pressure. Breakout above 3500 is likely and would signal another advance.

Dow Jones Euro Stoxx 50

The FTSE 100 is consolidating in a narrow range below 7400. Rising troughs on Twiggs Money Flow indicate strong buying pressure. Breakout above 7400 is likely and would offer a long-term target of 8000*.

FTSE 100

* Target: 7400 + ( 7400 – 6700 ) = 8100

Dow consolidation

Dow Jones Industrial Average is consolidating in a narrow band between 20400 and 20800. Narrow bands in an up-trend signal accumulation and breakout above 20800 would signal another advance.

Dow Jones Industrial Average

Declining 21-day Twiggs money Flow is typical of a consolidation, provided it respects the zero line. A trough above zero confirms medium-term buying pressure.

ASX 200 faces bank headwinds

The ASX 300 Banks Index continues to test support at 9000. Declining Twiggs Money Flow warns of selling pressure and reversal below 8900 would warn of a correction.

ASX 300 Banks

The ASX 200 continues its advance towards 6000, with rising Twiggs Money Flow signaling buying pressure. But it is vulnerable to a correction in the Banks Index, the largest sector in the broad index.

ASX 200

* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000

The economy is still exposed to a property bubble and APRA is likely to keep the pressure on banks to increase their capital reserves, which would lower their return on equity.

RBA Monetary Policy: What could go wrong?

Statement by Philip Lowe, Governor
Monetary Policy Decision
4 April 2017

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy have improved over recent months. Both global trade and industrial production have picked up. Labour markets have tightened in many countries. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income.

Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Core inflation remains low. Long-term bond yields are higher than last year, although in a historical context they remain low. Interest rates have increased in the United States and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.

The Australian economy is continuing its transition following the end of the mining investment boom. Recent data are consistent with ongoing moderate growth. Most measures of business confidence are at, or above, average and non-mining business investment has risen over the past year. At the same time, some indicators of conditions in the labour market have softened recently. In particular, the unemployment rate has moved a little higher and employment growth is modest. The various forward-looking indicators still point to continued growth in employment over the period ahead. Wage growth remains slow.

The outlook continues to be supported by the low level of interest rates. Lenders have recently announced increases in mortgage rates, particularly those paid by investors. Financial institutions remain in a good position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Inflation remains quite low. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent. The rise in underlying inflation is expected to be a bit more gradual with growth in labour costs remaining subdued.

Conditions in the housing market continue to vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades.

Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income. By reinforcing strong lending standards, the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness. Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions. A reduced reliance on interest-only housing loans in the Australian market would also be a positive development.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Inflation low.
Interest rates low.
Income growth low.
Labour market softening.
Sydney house prices up 18.9% (YOY).
Melbourne up 15.9%.
China teeters as PBOC attempts to slow rapid credit expansion.

What could go wrong?

Source: Statement by Philip Lowe, Governor: Monetary Policy Decision | Media Releases | RBA

Could Scotland go their own way?

Interesting view from Neils Jensen at Absolute Return Partners in the UK:

Nicola Sturgeon has recently called for a second Scottish independence referendum, this time using Brexit as the excuse. She cannot keep calling for a referendum every time she doesn’t get the outcome she so badly wants, but she has a point. Brexit does indeed change things quite fundamentally.

Nicola Sturgeon

The point Sturgeon has chosen to disregard, or at least has chosen not to bring up in the public domain, is that Scotland can hardly afford the independence that she so desperately seeks. Scotland runs a fiscal deficit of about 9.5% of GDP at present and only survives because of grants from London. Yet, she has promised a significant increase in welfare spending in an independent Scotland. Her case was a great deal stronger when oil prices hovered around $120-130 per barrel. With oil prices around $50, she has no case at all…..

Source: The truth about Brexit – The Absolute Return Letter

Politicians addicted to the polls

From Ross Gittins:

I realised the Australian government was fast approaching peak fake when I read Laura Tingle of the Financial Review’s revelation that Malcolm Turnbull’s Snowy 2.0 announcement was timed to favourably influence the imminent fortnightly Newspoll result.

When our leaders progress from being mesmerised by opinion polls to trying to game them, that’s when we know the country’s in deep, deep trouble.

It’s long been clear that, acting on their belief that “the perception is the reality”, the political class – Labor and Coalition – has focused less on attempting to fix problems and more on being seen to be fixing them.

But trying to game the political polls takes faking it to a new level: being seen to be seen to be trying to fix things…..

The only way to prevent this short-term focus is to change the system. In a winner takes all political system, who can blame the actors for focusing on the next election instead of the long-term interests of the country.

I have long advocated proportionate representation in government along the lines of the Swiss system. So politicians can quit the grandstanding and get on with doing their job. The Swiss enjoy one of the best run economies in the world, simply because their leaders take a fifty-year view rather than the four- or five-year election cycle.

In the Swiss system, a central committee is democratically elected, based on proportional representation. All parties are represented on the 7-member Federal Council and decision-making is collective. Council members serve one year terms as the largely-ceremonial head of state. The strength of the system is its stability, with only one change to the composition of the 7-member Council over the last 50 years. This enables members to focus on long-term goals rather than on short-term politics — the reason why the Swiss economy is one of the most stable and successful, ranked 8th in the world in terms of GDP per capita according to the IMF.

Powers of the central committee are restrained by a vibrant direct democracy where citizens regularly vote on national referendums. The ability of voters to overturn political decisions maintains a strong check on the central committee during their elected term and also curbs the influence of special interest groups, another abscess on butt of many democracies.

Source: Politicians addicted to the appearance of economic success

Dow Descending Wedge

Dow Jones Industrial Average displays a descending broadening wedge on the daily chart. Thomas Bulkowski describes this as a “mid list performer ….found most often with upward breakouts in a bull market. Downward breakouts are quite rare.”

Dow Jones Industrial Average

The correction seems mild and lacks urgency from sellers. It is very likely to end with an upward breakout, above the wedge at 20800, signaling another advance. Watch for a failed down-swing within the wedge pattern. According to empirical testing done by Bulkowski, a partial decline has a high probability (87%) of resolving in an upward breakout.

Latest GDP numbers confirm that low growth of the past decade continues.

GDP & Forecast

The quick rule-of-thumb forecast — Private sector employee payroll x Average Hours Worked x Average Hourly Rate — has proved remarkably accurate and has become one of my favorite indicators.

What drives Russian active measures & influence campaigns?

Testimony before U.S. Senate Select Committee on Intelligence
By Eugene B. Rumer, Senior Fellow and Director, Russia and Eurasia Program, Carnegie Endowment for International Peace
March 30, 2017

….To understand why the Russian government is engaged in this large-scale and diversified
influence operation, which blends overt and covert activities, one needs to step back and put it in
the context of events of the quarter century since the end of the Cold War.

Every country’s foreign policy is a product of its history, its geography, and its politics. Russia is
no exception to this rule, and to understand the pattern of Russian behavior at home and abroad,
we need to look at Russian history, Russian geography, and Russian domestic politics.

War in Europe is integral to the formative experience of every Russian. The country’s national
narrative is impossible without the record of two wars—the Patriotic War of 1812, which Russians
view as a war of liberation from Napoleon’s invasion of Russia, and the Great Patriotic War of
1941-1945. Both wars were fought to liberate Patria, the Fatherland, from foreign occupiers. In
1812, Napoleon entered Moscow and the city was burned. In 1941, Hitler’s armies were stopped
just outside the city limits of Moscow. Americans, too, had their war of 1812, and Washington too
was burned, but few Russians know or remember it, just as they think little of the fighting in the
Pacific theater against Japan in the second world war. Stalin’s armies didn’t enter it until nearly
the very end, three months after the war in Europe ended. The end of the Great Patriotic War is
celebrated in Russia every year as a great national holiday on May 9. The greatest Russian novel
of all times is Leo Tolstoy’s War and Peace, all Russians read it in high school. They are also
taught in history classes that their country’s greatest accomplishment of the 20th century was the
defeat of fascism in the Great Patriotic War.

The war of 1812 ended for Russia when the armies of Tsar Alexander I entered Paris in 1814. The
Great Patriotic War ended in 1945 when Stalin’s armies entered Berlin. From 1945 to 1989, when
the Berlin Wall came down, Russia was at its most secure, or so successive generations of Russian
leaders have been taught to believe. The history and the strategy taught in Russian military
academies for decades after it ended were the history and the strategy of the Great Patriotic War.
The map for tabletop exercises at the Military Academy of the General Staff in 2001 was a giant
map of the European theater. U.S. strategists were by that time “done” with Europe and shifting
their focus from the Balkan edge of the continent to South Asia and the Middle East. Russia was
not “done” with Europe.

Little appreciated in the West at the time was the trauma suffered by the Russian national security
establishment when it lost its outer and inner security buffers—the Warsaw Pact and the Soviet
empire. The sense of physical security afforded by this dual buffer between NATO’s armies and
the Russian heartland was gone. Russian declaratory policy may have been to sign on to the 1990
Charter of Paris as the Cold War ended, but the historical legacy and the geography of Russian
national security could not be altered with the stroke of a pen. Even as the Communist system was
dismantled and the Soviet Union disbanded, Russia’s national security establishment, which had
been brought up for generations to think in terms of hard power, could not and did not embrace the
new vision of European security based on shared values.

In 1991, with their society in turmoil, their economy in tatters, their military in retreat from the
outer and inner empires, and their country literally falling apart, Russian leaders had no choice but
to go along with that vision. They also accepted as given that history is written by the victors, and
that the victors would also make the rules for the new era. Russia would have to go along with it
for as long as it remained weak.

The 1990s were a terrible decade for Russia. Its domestic politics remained in turmoil, its
economy limped from one crisis to the next, and its international standing—only recently that of a
superpower—collapsed. Western students of Russia were entertaining the prospect of a world
without Russia. It was not lost on Russian political elites that the 1990s were also a time of great
prosperity and global influence for the West. For them, brought up on the idea of importance of
hard power, the dominance of the West was inextricably tied to its victory in the Cold War, the
defeat of Russia, its retreat from the world stage, and the expansion of the West in its wake.

Russia Is Back

But Russia would not remain weak indefinitely. Its economic recovery after the turn of the
century, buoyed by soaring global prices for commodities and hydrocarbons, and its domestic
political consolidation around Vladimir Putin and his brand of increasingly authoritarian
leadership, so different from the leadership of Boris Yeltsin, have laid the groundwork for a return
to Russia’s more assertive posture on the world stage.

That increasingly assertive posture has manifested itself on multiple occasions and in different
forms over the past decade and a half—in Vladimir Putin’s speech at the Munich Security
Conference in 2007; in the war with Georgia in 2008 and the statement in its aftermath by then-
president Dmitry Medvedev about Russia’s claim to a sphere of “privileged interests” around its
periphery; and finally in the annexation of Crimea in 2014 and the undeclared war in eastern
Ukraine to keep Ukraine from slipping from Russia’s orbit.

For the West, Russia’s return to the world stage has been nothing more than pure revanchism. It
violates the basic, core principles of the post-Cold War European security architecture—which
Russia pledged to observe over a quarter-century ago.

For Russia, it is restoring a balance—not the old balance, but some semblance of it. Currently,
NATO troops are deployed to deter Russian aggression against Estonia. (Curiously, former
speaker of the House Newt Gingrich has described it as the “suburbs of St. Petersburg.”) Russia’s
security establishment views this commitment by NATO countries to its vulnerable ally as a threat
to the heartland.

The narrative of restoring the balance, correcting the injustice and the distortions of the 1990s,
when the West took advantage of Russia’s weakness, has been the essential element of Russian
state-sponsored propaganda since the beginning of the Putin era. Whether or not we choose to
accept this narrative, these beliefs undergird Russia’s comeback on the world stage and political
consolidation at home. In public and private, top Russian officials proclaim that the wars in
Georgia and Ukraine were fought to prevent Western encroachment on territories vital to Russian
security. The military deployment in Syria merely restores Russia’s traditional foothold in the
Middle East, from which Russia withdrew when it was weak, and where it was replaced by the
West with consequences that have been tragic for the entire region.

In domestic politics, Putin’s authoritarian restoration is treated by the majority of average and elite
members of Russian society as the return to the country’s traditional political health, free from
foreign interference in its political and economic life. The more pluralistic system and dramatic
decline of the 1990s are linked in this narrative to the influence of the United States and other
foreign interests in Russia’s economy and politics, to their desire to introduce alien values in
Russia’s political culture and take Russia’s oil. U.S. support for Russian civil society is an effort to
undermine the Russian state, to bring Russia back to its knees, and take advantage of it, both at
home and abroad. Western economic sanctions imposed on Russia in the wake of its annexation of
Crimea and the undeclared war in eastern Ukraine are a form of warfare designed to weaken
Russia and gain unfair advantage over it. Western support for democracy in countries around
Russia’s periphery is an effort to encircle it and weaken it too.

This narrative has dominated the airwaves inside Russia, where the Kremlin controls the
television, which is the principal medium that delivers news to most Russians. With independent
media in retreat and alternative sources of information marginalized, this narrative has struck a
responsive chord with many Russians. The narrative has been effective because it contains an
element of truth—Russia did implode in the 1990s, and the West prospered; Russia did recover
from its troubles and regained a measure of its global standing on Putin’s watch; the West did
promote democracy in Russia, which coincided with its time of troubles; and the West has been
critical of the Russian government’s retreat from democracy as Russia regained strength.

Moreover, foreign policy traditionally was and is the preserve of the country’s political elite and
its small national security establishment. Whereas there are some voices inside Russia who, like
the leading anti-corruption activist Alexei Navalny, have challenged the many domestic failings
and authoritarian leanings of the Putin government, there are hardly any who have challenged its
foreign policy record. Worse yet, the Kremlin propaganda has been apparently so effective, and
the legal constraints imposed by it so severe, that few Russian opposition voices dare to challenge
the government’s foreign policy course for fear of being branded as foreign agents, enemies of the
people, and fifth columnists.

Warfare by Other Means

For all the talk about Russian recovery and resurgence on the world stage, its capabilities should
not be overestimated. Its GDP is about $1.3 trillion vs. U.S. GDP of over $18 trillion. The Russian
economy is not “in shambles,” but in the words of a leading Russian government economist it is
doomed to “eternal stagnation” unless the government undertakes major new reforms.

Russian defense expenditures are estimated at about $65 billion, or little more than President
Trump’s proposed increase in U.S. defense spending for FY 2018. The Russian military is
estimated at just over 750,000—well short of its authorized strength of one million—vs. U.S. 1.4
million active duty military personnel.

By all accounts, the Russian military has made huge strides in the past decade, benefiting from far-
reaching reforms and generous defense spending. It is undeniably far superior militarily to its
smaller, weaker neighbors and enjoys considerable geographic advantages in theaters around its
periphery.

Yet, the overall military balance does not favor Russia when it is compared to the United States
and its NATO allies. They have bigger economies, spend more on defense, have bigger, better
equipped militaries, and are more technologically sophisticated. A NATO-Russia war would be an
act of mutual suicide, and the Kremlin is not ready for it. Its campaign against the West has to be
prosecuted by other means.

That is the backdrop for the subject of today’s hearings. Since Russia cannot compete toe-to-toe
with the West, its leaders have embraced a wide range of tools—information warfare in all its
forms, including subversion, deception, dis- and mis-information, intimidation, espionage,
economic tools, including sanctions, bribery, selective favorable trading regimes, influence
campaigns, etc. This toolkit has deep historical roots in the Soviet era and performs the function of
the equalizer that in the eyes of the Kremlin is intended to make up for Russia’s weakness vis-à-
vis the West.

In employing this toolkit, the Kremlin has a number of important advantages. There is no domestic
audience before which it has to account for its actions abroad. The Kremlin has few, if any
external restraints in employing it, and its decisionmaking mechanism is streamlined. There is no
legislature to report to, for the Duma is a rubber stamp body eager to sign off on any Kremlin
foreign policy initiative.

The circle of deciders is far smaller than the Soviet-era Politburo, and it is limited to a handful of
Putin associates with similar worldviews and backgrounds. They are determined to carry on an
adversarial relationship with the West. They can make decisions quickly and have considerable
resources at their disposal, especially given the relatively inexpensive nature of most of the tools
they rely on. A handful of cyber criminals cost a lot less than an armored brigade and can cause a
great deal more damage with much smaller risks.

Shame and reputational risks do not appear to be a factor in Russian decision-making. In early-
2016, Russian Foreign Minister Sergei Lavrov did not shy away from repeating a patently false
fake media story about the rape of a Russian-German girl by a Syrian asylum-seeker in Germany.

Moreover, a version of selective naming and shaming—or targeting of political adversaries with
false allegations of misconduct—has been used by Russian propaganda to discredit political
adversaries in the West. Russian propaganda, and Putin personally, have sought to deflect the
attention from the fact of the intrusion into the DNC server and the top leadership of Hillary
Clinton’s presidential campaign to the information released as a result of it that has presented
various political operatives in an unfavorable light.

This not only deflects the attention from Russia’s role in this episode, it helps the Kremlin convey
an important message to its domestic audience about the corrupt nature of U.S. politics. Russia
therefore is no worse than the United States, which has no right to complain about corruption and
democracy deficit in Russia.

Russian meddling in the 2016 U.S. presidential election is likely to be seen by the Kremlin as a
major success regardless of whether its initial goal was to help advance the Trump candidacy. The
payoff includes, but is not limited to a major political disruption in the United States, which has
been distracted from many strategic pursuits; the standing of the United States and its leadership in
the world have been damaged; it has become a common theme in the narrative of many leading
commentators that from the pillar of stability of the international liberal order the United States
has been transformed into its biggest source of instability; U.S. commitments to key allies in
Europe and Asia have been questioned on both sides of the Atlantic and the Pacific. And last, but
not least, the Kremlin has demonstrated what it can do to the world’s sole remaining global
superpower.

It Is Not a Crisis, It Is the New Normal

Events of the past three years, since the annexation of Crimea by Russia, have been referred to as a
crisis in relations between Russia and the West. However, this is no longer a crisis. The
differences between Russia and the West are profound and are highly unlikely to be resolved in
the foreseeable future without one or the other side capitulating. The U.S.-Russian relationship is
fundamentally broken, and this situation should be treated as the new normal rather than an
exceptional period in our relations. For the foreseeable future our relationship is likely to remain
competitive and, at times, adversarial.

The full extent of Russian meddling in the 2016 presidential election is not yet publicly known.
But the melding of various tools (e.g, the use of cyber operations to collect certain information
covertly) and the provision of this information to outlets such as Wikileaks and the news media
was certainly a first. Unfortunately, it is not a first for U.S. allies and partners in Europe and
Eurasia. It is not the last either. Just a few days ago, Vladimir Putin received France’s right-wing
presidential candidate Marine Le Pen in the Kremlin. Previously, her National Front had received
a loan from a Moscow-based bank, and Russian media outlets have tried to injure the reputation of
her chief opponent Emmanuel Macron by spreading rumors about his sexuality and ties to
financial institutions. The chiefs of British and German intelligence services have warned publicly
about the threat from Russia to their countries’ democratic processes. The Netherlands recently
chose to forego reliance on certain computer vote tabulation systems due to elevated fears of
Russian interference and hacking.

The experience of Russian meddling in the 2016 U.S. election should be judged an unqualified
success for the Kremlin. It has cost it little and paid off in more ways than can be easily counted.
To be sure, U.S. officials should expect it to be repeated again and again in the future. 2016 was a
crisis, but it was not an aberration and should be treated as the new normal. Cyber is merely a new
domain. Deception and active measures in all their incarnations have long been and will remain a
staple of Russia’s dealings with the outside world for the foreseeable future.

Source: Carnegie Russia: Testimony of Eugene B Rumer before Intelligence Committee.

Dow warns of a correction

The commentator’s curse. Three days after I posted that Dow Jones Industrial Average was consolidating in a bullish narrow band below resistance at 21000, the Dow breached support at 20800. Downward breakout warns of a correction with support at 20000. Declining 21-day Twiggs Money Flow indicates medium-term selling pressure. Follow-through below 20600 would strengthen the (medium-term) bear signal but the primary trend remains up.

Dow Jones Industrial Average

The false break above 21000 was a hint that all was not well with the trend. Unfortunately we often only see what we expect and miss the subtle clues.

The Dow is in Stage III of a bull market. This is confirmed by a primary up-trend on the Transportation Average, although the current month shows a correction.

Dow Jones Transportation Average

Small Caps indexes like the Russell 2000 also display a strong up-trend, reinforcing the Stage III conclusion.

Russell 2000 Small Caps

Likewise, the Nasdaq 100.

Nasdaq 100

I have not drawn conventional trendlines, on the above charts, through the lowest points in the up-trend. Instead I have dragged a linear regression line down to “touch” the mid-point lows. I find this offers a better fit in many cases where there is an initial (bounce) spurt at the start of the trend.

ASX stalls at 5800

Banks have run into resistance, with the ASX 300 Banks Index retreating below 9000. The recent false break (above 9000) is a mildly bearish sign but the long-tail on this week’s candle is mildly bullish. Follow-through above 9100 remains more likely and would signal an advance to 9500*.

ASX 300 Banks

* Target medium-term: 9000 + ( 9000 – 8500 ) = 9500

This is not a criticism of the policy, but recent rate hikes on investor mortgages become a self-fulfilling prophecy. Concerns about the housing market lead banks to hike rates. Higher rates discourage new borrowing, leading to a contraction in demand. Which in turn leads to lower house prices.

Miners continue their downward path. The ASX 300 Metals & Mining Index has broken its long-term rising trendline, while Declining Twiggs Money Flow peaks below zero warn of strong selling pressure.

ASX 200

With its two biggest sectors meeting resistance, the ASX 200 is stuck at 5800. But rising troughs on Twiggs Money Flow (above zero) signal buying pressure. Breakout above 5800 is likely and would signal a test of 6000*. Reversal below 5600 is unlikely but would warn of a correction.

ASX 200

* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000

S&P 500 Bollinger Band Squeeze

John Bollinger says that a Band Width squeeze has preceded many spectacular moves on the S&P 500. A Bollinger Band squeeze highlights when the bands contract into a narrow “neck” indicating low volatility. The squeeze is normally signaled by a fall in the Band Width indicator to below 2.0%.

S&P 500

Upward breakout from a narrow “squeeze” in late January flagged a strong advance, from 2280 to 2400.

Now we have the opposite, with breakout below 2360 warning of a correction. But Bollinger warns that the market often starts with a fake move, in the wrong direction, before the real move commences. So we need to be cautious.

Dow breaches support

The commentator’s curse. Three days after I posted that Dow Jones Industrial Average was consolidating in a bullish narrow band below resistance at 21000, the Dow breached support at 20800. Downward breakout warns of a correction. Expect support at 20000. The false break above 21000 was a hint that all was not well with the trend. Unfortunately we often only see what we expect to see and miss the subtle clues.

Dow Jones Industrial Average

The Dow is in Stage III of a bull market, with long-term Twiggs Money Flow signaling strong buying pressure. Chances of a (primary trend) reversal seem low.

[Correction: Breach of support was at 20800, not 21800.]