East to West: Global stocks rally

In Asia, South Korea’s Seoul Composite Index found support at 2450 but be careful of a bearish divergence forming on Twiggs Trend Index. Reversal below zero would warn of a test of primary support at 2300.

Seoul Composite Index

Japan’s Nikkei 225 Index remains bullish. Trend Index troughs high above zero indicate strong buying pressure.

Nikkei 225 Index

China’s Shanghai Composite Index found support at 3250. Breakout above 3450 would signal a primary advance.

Shanghai Composite Index

India’s NSE Nifty Index broke resistance at 10500, signaling a fresh advance. Trend Index troughs above zero signal buying pressure. The immediate target is 11000*.

Nifty Index

Target 10500 + ( 10500 – 10000 ) = 11000

In Europe, the Footsie is advancing strongly after breaking through resistance at its June high of 7600. Trend Index is still declining but recovery above the declining trendline indicates buyers are taking control.

FTSE 100

Europe, represented by the DJ Euro Stoxx 600, remains weak. A declining Trend Index warns of selling pressure despite breakout above resistance at 396.

DJ Euro Stoxx 600

Moving to the US, the S&P 500 chart says it all. Investors continue to shrug off concerns about high valuations. The rising Trend Index, high above zero, indicates strong buying pressure. We need a correction fairly soon to prevent an accelerating up-trend leading to a blow-off.

S&P 500

Commodities are also advancing, led by stronger crude oil prices.

Nymex Light Crude

It’s about time that the Fed and other central banks took the punch bowl away, before the party really gets out of hand.

East to West: Footsie surprise

The Footsie is testing resistance at its June high of 7600. Trend Index is still declining but recovery above 0.2% would indicate buyers are taking control.

FTSE 100

Europe is weaker, with tall shadows on weekly Dow Jones Euro Stoxx 600 candles and a declining Trend Index warning of selling pressure.

DJ Euro Stoxx 50

In Asia, South Korea’s Seoul Composite Index broke support at 2450, confirming the bearish divergence on Twiggs Trend Index. Expect a correction to test primary support at 2300.

Seoul Composite Index

Japan’s Nikkei 225 Index remains bullish, consolidating in a narrow band below resistance at 23000. Trend Index troughs high above zero indicate strong buying pressure.

Nikkei 225 Index

China’s Shanghai Composite Index found short-term support at 3250. Bearish divergence on the Trend Index warns of selling pressure.

Shanghai Composite Index

India’s NSE Nifty Index is testing resistance at 10500 after a mild correction to 10,000. Twiggs Trend Index respecting zero signals strong buying pressure. Breakout above 10500 is likely and would indicate another primary advance with an immediate target of 11000*.

Nifty Index

Target 10500 + ( 10500 – 10000 ) = 11000

Moving to the US, the S&P 500 continues to shrug off concerns over high valuations and a flattening yield curve. The rising Trend Index, high above zero, indicates long-term buying pressure.

S&P 500

Bellwether transport stock Fedex has advanced to 250, signaling strong economic activity, a bullish sign for the entire economy.

Nasdaq 100

East to West: Asia, Europe weaken but US powers on

Starting with Asia, South Korea’s Seoul Composite Index continues to test support at 2450. Bearish divergence on the Trend Index warns of selling pressure but this appears secondary in nature. Breach of the rising trendline would warn that the primary up-trend is losing momentum.

Seoul Composite Index

Japan’s Nikkei 225 Index is consolidating between 22000 and 23000. A Trend Index trough high above zero indicates strong buying pressure.

Nikkei 225 Index

China’s Shanghai Composite Index is undergoing a correction that should find support at 3200. Bearish divergence on the Trend Index, and a cross below zero for the first time since May 2016, warn of continued selling pressure.

Shanghai Composite Index

India’s NSE Nifty Index continues to test support at 10000 after a weak correction. Twiggs Trend Index respecting zero signals strong buying pressure. Recovery above 10500 is likely and would indicate another primary advance.

Nifty Index

Target 10500 + ( 10500 – 10000 ) = 11000

Europe is weaker despite strong manufacturing signals. Dow Jones Euro Stoxx 50 found support at 3520 but the Trend Index is declining, warning of selling pressure. Breach of 3520 is likely and would warn of a test of primary support at 3400.

DJ Euro Stoxx 50

The Footsie remains volatile, with the index headed for another test of stubborn resistance at 7600. But Trend Index is declining and continues to warn of selling pressure.
FTSE 100

Moving to the US, the S&P 500 continues to shrug off concerns regarding high valuations and a flattening yield curve. The rising Trend Index, high above zero, indicates long-term buying pressure.

S&P 500

The Nasdaq 100 also continues a strong bull market, with the big five tech stocks (Apple, Amazon, Alphabet, Microsoft and Facebook) all recording solid gains.

Nasdaq 100

East to West: Europe steadies, S&P powers on

Dow Jones Euro Stoxx 600 found support at 380 and is now headed for a test of recent highs at 395. Bearish divergence on the Trend Index continues to warn of selling pressure but recovery above the declining trendline (on the Trend Index) would indicate that pressure has eased. Breakout above 395 would signal another primary advance, with a target of 425*.

DJ Euro Stoxx 600

Target 395 + ( 395 – 365 ) = 425

Conclusion of phase I of Brexit negotiations helped the Footsie find support at 7300. Trend Index continues to warn of selling pressure. Breach of 7200 is unlikely at present but would signal a primary down-trend. Breakout above 7600 would signal a primary advance, but is also unlikely. Expect further consolidation.

FTSE 100

In Asia, South Korea’s Seoul Composite Index is undergoing a correction but seems to have found support at 2450. Respect of the rising trendline would confirm the primary up-trend.

Seoul Composite Index

Japan’s Nikkei 225 Index found solid support at 22000, with long tails signaling buyer enthusiasm. The trend index trough high above zero indicates strong buying pressure.

Nikkei 225 Index

China’s Shanghai Composite Index is undergoing a correction. A long tail suggests support at 3250. Bearish divergence on the Trend Index warns of selling pressure but this appears to be secondary in nature.

Shanghai Composite Index

India’s NSE Nifty Index found support at 10000 after a weak correction. Recovery above 10500 is likely and would warn of another primary advance.

Nifty Index

Target 10500 + ( 10500 – 10000 ) = 11000

In the US, the S&P 500 continues to shrug off concerns regarding high valuations and a flattening yield curve. The rising Trend Index indicates buying pressure.

S&P 500

The Nasdaq 100 continues its strong bull market, powered by the big five tech stocks (Apple, Amazon, Alphabet, Microsoft and Facebook). Corrections are mild and of short duration, typical of the latter stages of a bull market.

Nasdaq 100

GDP slow growth as stocks power on

GDP growth for the third quarter is out and I can see little to indicate that growth is improving despite tweets to the contrary from the White House.

Nominal GDP is growing at just over 4 percent per year, continuing the narrow band established since late 2010. Growth closely follows our monthly estimate: total weekly hours worked multiplied by the average wage rate.

Nominal GDP

Real GDP, beset by problems in accurately measuring inflation, grew by 2.3 percent over the last 4 quarters. But growth remains relatively soft and our latest monthly estimate (growth in total weekly hours worked) slowed to 1.2 percent in September.

Real GDP

The S&P 500 powers on, climbing to a new high of 2581, while rising Twiggs Money Flow signals buying pressure.

S&P 500

Retracement of the Nasdaq 100 successfully tested its new support level at 6000, confirming a fresh advance.

Nasdaq 100

Bellwether transport stock Fedex is advancing strongly while a Twiggs Money Flow trough above zero suggests strong buying pressure. A bullish sign for broad economic activity.

Fedex

Stage 3 of the bull market continues.

It was never my thinking that made big money for me. It was my sitting…Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn.

~ Jesse Livermore

S&P 500 makes new high

The S&P 500 made a new high on Friday, while Twiggs Money Flow rose above its descending trendline, signaling that selling pressure has eased. Expect retracement to test the new support level but respect is likely and would confirm a target of 2600* for the advance.

S&P 500

* Target calculation: 2500 + ( 2500 – 2400 ) = 2600

The Nasdaq 100 has been dragging its feet a bit, still testing resistance at 6000. But Technology stocks are likely to follow the main index, with breakout above 6000 signaling a fresh advance.

Nasdaq 100

Tech giants Amazon and Apple are partly responsible for Nasdaq tardiness, with Amazon retreating from its watershed breakout above $1000. Further decline would be cause for concern — when leading stocks no longer lead — but recovery above $1000 is more likely and would be a bullish sign for the broader market.

Amazon

Fedex bullish but Nasdaq displays selling pressure

Bellwether transport stock Fedex is testing resistance at 220. A higher trough on Twiggs Money Flow indicates buying pressure. Breakout above 220 is likely and would signal a primary advance. This is a bullish sign for broad economic activity.

Nasdaq 100

The S&P 500 is retracing to test its new support level at 2480/2500. Declining Twiggs Money Flow warns of medium-term selling pressure. Respect of support would confirm a fresh advance, offering an immediate target of 2600. But breach of support is as likely and would warn of a correction to test the rising trendline around 2420.

S&P 500

The Nasdaq 100 also displays medium-term selling pressure, but with a steeper fall on Twiggs Money Flow. Having failed to break resistance at 6000, a correction is likely, with a target of 5750.

Nasdaq 100

S&P 500 and Nasdaq test resistance

The bull market continues, with the S&P 500 testing resistance at 2500. Twiggs Trend Index troughs above zero signal buying pressure. Breakout would signal a fresh advance, offering an immediate target of 2600.

S&P 500

The Nasdaq 100 is similarly testing resistance at 6000. Immediate target for a breakout would be 6200.

Nasdaq 100

What does falling job growth indicate?

Job growth fell to 156,000 for August, from a high of 210,000 in June, according to the latest BLS stats.

Job growth

Unemployment ticked up from 4.3% to 4.4% for August.

Unemployment

What does this mean? Very little, if we look at our real GDP forecast based on total nonfarm payroll multiplied by average weekly hours worked. GDP growth is slow but steady.

S&P 500 with Twiggs Volatility

The recently published Philadelphia Fed Leading Index for July has slowed but remains comfortably above the early warning level of 1. The index normally falls below 0.5 in the months ahead of a recession.

Philadelphia Fed Leading Index

The S&P 500 is testing resistance at 2480 after a weak correction that respected support at 2400. Bearish divergence on Twiggs Money Flow continues to warn of selling pressure but this seems secondary in nature. Breakout above 2480 is likely and would offer a target of 2540*.

S&P 500

Target 2480 + ( 2480 – 2420 ) = 2540

The Nasdaq 100 is testing resistance at its all-time high of 6000. Bearish divergence on Twiggs Money Flow again warns of secondary selling pressure. Breakout would offer a short-term target of 6250 and a long-term target of 7000.

Nasdaq 100

Target 6000 + ( 6000 – 5750 ) = 6250

The bull market remains on track for further gains.

S&P 500 bull market on track

The S&P 500 is undergoing a secondary correction that is likely to test the long-term rising trendline and support at 2400. Bearish divergence on Twiggs Money Flow warns of selling pressure but this seems secondary in nature. The bull market remains on track for further gains.

S&P 500

Target 2400 + ( 2400 – 2300 ) = 2500

The Dow Jones Transportations Average is also undergoing a correction. Bearish divergence with Twiggs Money Flow dipping below zero warns of stronger selling pressure. Expect a test of primary support at 8800.

Dow Transportation Average

The Nasdaq 100 is retreating from resistance at 6000. Bearish divergence warns of secondary selling pressure. Breach of primary support at 5600 is considered unlikely.

Nasdaq 100

Nasdaq and S&P500 meet resistance

July labor stats are out and shows the jobless rate fell to a 16-year low at 4.3%. Unemployment below the long-term natural rate suggests the economy is close to capacity and inflationary pressures should be building.

Unemployment below the long-term natural rate

Source: St Louis Fed, BLS

But hourly wage rates are growing at a modest pace, easing pressure on the Fed to raise interest rates.

Hourly Wage Rates

Source: St Louis Fed, BLS

Fed monetary policy remains accommodative, with the monetary base (net of excess reserves) growing at a robust 7.5% a year.

Hourly Wage Rates

Source: St Louis Fed, FRB

Our forward estimate of real GDP — Nonfarm Payroll * Average Weekly Hours — continues at a slow but steady annual pace of 1.79%.

Real GDP compared to Nonfarm Payroll * Average Weekly Hours

Source: St Louis Fed, BLS & BEA

The Nasdaq 100 has run into resistance at 6000. No doubt readers noticed Amazon [AMZN] and Alphabet [GOOG] both retreated after reaching the $1000 mark. This is natural. Correction back to the rising trendline would take some of the heat out of the market and provide a solid base for further gains. Selling pressure, reflected by declining peaks on Twiggs Money Flow, appears secondary.

Nasdaq 100

The S&P 500 is also running into resistance, below 2500. Bearish divergence on Twiggs Money Flow warns of moderate selling pressure but this again seems to be secondary — in line with a correction rather than a reversal.

S&P 500

Target 2400 + ( 2400 – 2300 ) = 2500

S&P 500 hesitates at 2450

The S&P 500 hesitated at 2450, short of its target of 2500*. Bearish divergence on Twiggs Money Flow warns of medium-term selling pressure. Expect stronger resistance at 2500.

S&P 500

Tech stocks are advancing at a rapid pace, with the Nasdaq 100 approaching 6000 after only breaking 5000 in January. Rising troughs on Twiggs Money Flow signal strong buying pressure. No signs of a ‘blow-off’ yet.

Nasdaq 100

Stage III of a bull market can last several years.

S&P 500, Nasdaq, Fedex bull signal

Bellwether transport stock Fedex [FDX] broke resistance at $200, signaling an increase in economic activity.

Fedex

The S&P 500 followed through above 2400, offering an immediate target of 2500. Recovering Twiggs Money Flow signals medium-term buying pressure.

S&P 500

The Nasdaq 100 has gained more than 20% in the last 3 months, since breaking resistance at its Dotcom high of 4800. With Amazon breaking through $1000, I am concerned that tech stocks are over-heating.

Nasdaq 100

Nasdaq buying pressure

The Nasdaq 100 continues its impressive climb, shown here on a monthly chart. Rising troughs on Twiggs Money Flow signal strong buying pressure and a test of 6000 is likely.

Nasdaq 100

Dow Jones Industrial Average continues to test resistance at 21000 after a shallow correction. Elevated troughs on Twiggs Money Flow again signal buying pressure. Breakout is likely and would signal a fresh advance, with an immediate target of 22000.

Dow Jones Industrial Average

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.

Dow and Nasdaq: It’s a bull market

The Nasdaq 100 is in blue sky territory, having broken clear of its Dotcom high at 4900. Rising troughs on Twiggs Money Flow signal long-term buying pressure. A correction to test the new support level remains likely but this is unlikely to upset the bull market.

Nasdaq 100

The Dow Jones Industrial Average is also in a bull market, headed for a test of 21000. Twiggs Money Flow troughs above zero again indicate strong buying pressure.

Dow Jones Industrial Average

The Dow Jones Transport Average is also in blue sky territory having respected its new support level at 9000. The up-trend provides bull market confirmation required by classic Dow Theory.

Dow Jones Transport Average

It’s a bull market

Dow Jones Industrial Average successfully tested the new support level at 18000 and has now broken resistance at 19000, confirming the target of 20000*. Rising Twiggs Money Flow indicates selling pressure has ended. Expect a brief retracement to test support at 19000 but respect is likely.

Dow Jones Industrial Average

* Target medium-term: 18000 + ( 18000 – 16000 ) = 20000

Charles Dow, founder of Dow Theory more than a century ago, always waited for confirmation from the Rail Average. Nowadays, railways have diminished in importance and we use the broader Transport Average which currently signals a primary up-trend after a lengthy “line” or narrow consolidation over the last 3 months.

Dow Jones Transport Average

It is also advisable to look for confirmation from the broader S&P 500 and the tech-heavy Nasdaq 100 index.

The S&P 500 broke resistance at 2200, signaling a primary advance with a target of 2300*. Rising Twiggs Money Flow again indicates that selling pressure has ended.

S&P 500 Index

* Target medium-term: 2200 + ( 2200 – 2100 ) = 2300

The Nasdaq 100 recently set an all-time high after breaking resistance at its March 2000 high of 4700. Retracement twice respected the new support level and follow-through above 4900 would confirm another primary advance.

Nasdaq 100

Nasdaq bearish divergence

The S&P 500 found resistance at 2100, indicating a continued lack of enthusiasm. Declining 13-week Twiggs Money Flow flags medium-term selling pressure. Reversal below 2000 would warn of another test of primary support at 1870. Upward breakout now appears less likely, but would signal a fresh advance to 2400*.

S&P 500 Index

* Target calculation: 2130 + ( 2130 – 1870 ) = 2390

Declining CBOE Volatility Index (VIX) below 20 indicates market risk is returning to normal. Some macro indicators remain elevated, however, which is why we maintain reduced exposure.

S&P 500 VIX

The Nasdaq 100 is testing the previous (2000) high of 4800. Breakout would be a bullish sign for the broader market but bearish divergence on 13-week Twiggs Money Flow continues to warn of stubborn resistance.

Nasdaq 100

Canada’s TSX 60 is struggling to break resistance at 800. 13-Week Twiggs Momentum peaks below zero continue to warn of a strong primary down-trend. Recovery above 825 is unlikely, while failure of support at 765 would confirm another decline.

TSX 60 Index

* Target calculation: 775 – ( 825 – 775 ) = 725

Europe

Germany’s DAX is retracing to test its new support level at 11000. Respect is likely and would confirm another test of 12400. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 11000 is unlikely, but would warn of another test of 10000.

DAX

The Footsie is strengthening, with rising 13-week Twiggs Momentum. Breakout above 6500 would indicate another test of 7000/7100. Reversal below 6000 is unlikely but would signal a primary down-trend.

FTSE 100

Asia

Dow Jones Shanghai Index

The Shanghai Composite Index recovered above support at 3500. I remain wary of China because of the high Debt to GDP ratio, the need to wean itself off investment stimulus, and impending rate rises in the US which could encourage further capital outflows.

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Japan’s Nikkei 225 is testing short-term resistance at 20000. This is unlikely to impede an advance to 21000. Rising 13-week Twiggs Money Flow indicates buying pressure.

Nikkei 225 Index

* Target calculation: 19000 + ( 19000 – 17000 ) = 21000

India’s Sensex is retracing to test the former band of primary support at 26000/26500. Respect would confirm a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero would strengthen the signal. Follow-through below 25000 would offer a target of 22500*. Recovery above the upper trend channel at 27000 is unlikely, but would suggest a rally to 30000.

SENSEX

* Target calculation: 25000 – ( 27500 – 25000 ) = 22500

Australia

The ASX 200 encountered short-term resistance at 5300. Declining 13-week Twiggs Money Flow indicates (medium-term) selling pressure; reversal below zero would strengthen the signal. Breach of 5150 would warn of another test of primary support at 5000. Failure of support would signal a primary down-trend.

ASX 200

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000