Europe: DAX and Footsie buying pressure

Germany’s DAX is headed for a test of resistance at the 2012 high of 7200. A trough above zero on 13-week Twiggs Money Flow indicates strong buying pressure. We should see stubborn resistance at 7200 but also strong support at 6500 if there is a retracement.

DAX Index

The FTSE 100 is testing resistance at 5700 while 21-day Twiggs Money Flow bottoming above zero indicates (medium-term) buying pressure. Breakout would offer a target of 5900*.

FTSE 100 Index

* Target calculation: 5700 + ( 5700 – 5500 ) = 5900

Gold rallies

Spot gold rallied late Friday, breaking the first line of resistance at $1600/ounce. Penetration of the declining trendline suggests that the down-trend is weakening, but 63-day Twiggs Momentum remains firmly below zero. Retracement that respects new support at $1600 would strengthen the bull signal, however, as would recovery of Momentum above zero.

Spot Gold

* Target calculation: 1500 – ( 1800 – 1500 ) = 1200

Spot gold tests $1530

The Dollar Index followed through after last week’s breakout above resistance at 81.50/82.00, confirming the fresh advance signaled by a 63-day Twiggs Momentum trough above zero. Target for the advance is 86.00*.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

On the daily chart, spot gold tests medium-term support at $1530/ounce. Long tails indicate buying support but the rising dollar continues to apply downward pressure. Breach of support and follow-through below $1500 would signal a long-term decline to $1200/ounce*. Declining 63-day Twiggs Momentum (below zero) already indicates a primary down-trend. Recovery above $1600 is less likely but would indicate that the down-trend is weakening.

Spot Gold

* Target calculation: 1500 – ( 1800 – 1500 ) = 1200

Gold falters on dollar surge

Spot gold is testing short-term support at $1750/ounce as the greenback strengthens. Breach of the rising trendline would suggest that the advance is losing momentum — and breakout below $1700 would signal another test of primary support at $1600. Respect of $1700 is less likely, but would signal an advance to $1900.

Spot Gold

* Target calculation: 1800 + ( 1800 – 1700 ) = 1900

S&P 500 2008 weekly comparison

The similarity between the current weekly chart and 2008 continues.

S&P 500 Index Weekly 2008

The index is now retracing to test support at 1220, in a similar fashion to support at 1380 in 2008. Failure of support would be a strong bear signal, but confirmation would only come if primary support at 1100 is broken.

S&P 500 Index Weekly

* Target calculation: 1100 – ( 1300 – 1100 ) = 900

Aussie Dollar

The Aussie Dollar is headed for a test of support at $1.01/$1.00. Recovery above $1.08 would complete an inverted head and shoulders, but there is still some way to go.  Breach of support would warn of another primary decline. In the long-term, failure of support at $0.94 would offer a target of $0.80, while breakout above $1.08 would indicate a target of $1.22.

AUDUSD

* Target calculation: 0.94 – ( 1.08 – 0.94 ) = 0.80

Falling Treasury yields warn of money flowing out of stocks

10-Year Treasury Yields are testing medium-term support at 2.00 percent. Failure would indicate another primary decline — and bad news for stocks.

10-Year Treasury Yields

Japan and South Korea

Dow Jones Japan Index weakened Monday, warning of another test of primary support at 48.

Dow Jones Japan Index

Dow Jones South Korea Index had a stronger breakout, but is also now retracing. Respect of support would confirm the up-trend, while reversal below 400 would signal weakness.

Dow Jones South Korea Index

Now for the correction

Several weeks ago, when asked what it would take to reverse the bear market, I replied that it would take 3 strong blue candles on the weekly chart followed by a correction — of at least two red candles — that respects the earlier low. We have had three strong blue candles. Now for the correction.

On the S&P 500 expect retracement to test support at 1200 or 1250. Respect of 1250 would signal a strong up-trend, while failure of support at 1200 would warn of another test of primary support at 1100. A trough on 13-week Twiggs Money Flow that respects the zero line would also indicate strong buying pressure.

S&P 500 Index

* Target calculation: 1225 + ( 1225 – 1100 ) = 1350

Dow Jones Industrial Average weekly chart displays a similar picture. Expect retracement to test support at 11500. A peak on 63-day Twiggs Momentum that respects the zero line would be bearish — warning of continuation of the primary down-trend.

Dow Jones Industrial Average

* Target calculation: 11500 + ( 11500 – 10500 ) = 12500

The Nasdaq 100 is testing resistance at 2400 — close to the 2011 high. Breakout would signal a primary advance to 2800*, while respect would warn of another test of primary support at 2000. Bullish divergence on 13-week Twiggs Money Flow has warned of a reversal for several weeks.

Nasdaq 100 Index

* Target calculation: 2400 + ( 2400 – 2000 ) = 2800

Dollar tanks

The Dollar Index failed to confirm the primary up-trend, breaking support at 76 with a sharp fall in response to news of a resolution to the euro-zone debt crisis. Expect a test of primary support at 73. Breach of the rising trendline on 63-day Twiggs Momentum would confirm.

US Dollar Index

Expect gold and commodities to rally as a result of the weakening dollar.

Dow breaks 12000

Dow Jones Industrial Average broke through resistance at 12000. On the monthly chart we can see the index is headed for a test of its 2011 high at 13000. Breakout would signal an advance to 15000*. Bearish divergence on 63-Day Twiggs Momentum, however, continues to warn of a primary down-trend; and respect of 13000 would indicate another test of primary support at 11000.

Dow Jones Industrial Average

* Target calculation: 13 + ( 13 – 11 ) = 15

Looking at the weekly chart, retracement to test the new support level at 12000 is likely. Respect would confirm the primary advance, while failure would signal another test of primary support at 10500/11000. A 13-week Twiggs Money Flow trough above the zero line would indicate strong buying pressure.

Dow Jones Industrial Average

* Target calculation: 12 + ( 12 – 11 ) = 13

S&P 500 and Europe encounter resistance

The S&P 500 pulled back from resistance at 1250 and is headed for a test of short-term support at 1200. Failure would test primary support at 1100, while breakout above 1250 would signal an advance to 1400*. Rising 21-day Twiggs Money Flow continues to indicate secondary buying pressure.

S&P 500 Index

* Target calculation: 1250 + ( 1250 – 1100 ) = 1400

Dow Jones Europe index also ran into resistance at 250, bearish divergence on 21-day Twiggs Money Flow warning of short-term selling pressure. Reversal below 230 would test primary support at 205/210, while breakout above 250 would signal an advance to 290*.

Dow Jones Europe Index

* Target calculation: 250 + ( 250 – 210 ) = 290

2008 Deja Vu

Early May 2008, the S&P 500 index recovered above resistance at the former primary support level of 1400 on its second attempt. 13-Week Twiggs Money Flow broke back above zero, indicating secondary buying pressure. Breakout was followed by two pull-backs in May. The first made a false break below the new support level; the second followed through, commencing a 50% decline to 700.

S&P 500 Index Weekly Chart - 2008

We are now at a similar watershed. Expect retracement in the week ahead to test the new support level at 1250. Respect of support would strengthen the signal, but beware of any penetration. Follow-through above 1300 would signal that the (immediate) danger is over. Until then, consider this a bear market.

S&P 500 Index Weekly - 2011

* Target calculation: 1250 + ( 1250 – 1100 ) = 1400

Gold monthly chart

Spot gold remains in a strong primary up-trend on the monthly chart. Breakout below support at $1500 — or a 63-day Twiggs Momentum cross to below zero — would warn of a reversal, but respect of $1500 support would indicate another primary advance with a target of 2300*.

Spot Gold Monthly

* Target calculation: 1900 + (1900 – 1500 ) = 2300

Dollar Index: The big picture

When markets are volatile it often pays to take a step back and look at the big picture. A monthly chart shows the Dollar Index ranging between 70 and 90 since 2003, with the 80 level alternating as mid-range support/resistance. The index recently pulled back from resistance at 80 and will now either re-group for another attempt or medium-term support will give way, signaling a test of long-term support.

US Dollar Index Monthly

Zooming in to the daily chart shows narrow consolidation above medium-term support at 76.50. Breakout above 77.60 and the descending trendline would signal another test of 80, while failure of support at 76 would mean a decline to 73.50*.

US Dollar Index

* Target calculation: 76.5 – ( 79.5 – 76.5 ) = 73.5

In the long term, breach of 73.50 would test 70, while breakout above 80 would signal an advance to 90. If support at 70 fails, gold will rocket through $2000/ounce, but that is only likely to occur if the Fed rolls out QE3.

Japan & South Korea buying pressure

Japan’s Nikkei 225 Index retreated Tuesday, but has completed a small double bottom, indicating a test of 9000. Bullish divergence on 13-week Twiggs Money Flow flags strong buying pressure. Breakout above 9000 would indicate an advance to 10000.

Nikkei 225 Index

* Target calculation: 9000 + ( 9000 – 8400 ) = 9600

The Seoul Composite Index shows a weaker divergence on 13-week Twiggs Money Flow. Breakout above 1900 would offer a target of 2150, while respect would re-test primary support at 1650.

Seoul Composite Index

* Target calculation: 1900 + ( 1900 – 1650 ) = 2150

South Africa & Brazil

The JSE Overall Index is testing both resistance and the descending trendline at 31500. Breakout would test the 2008/2011 high of 33000, but respect would warn of a test of 30000. Reversal below 30000 would signal a primary decline to 26000. 13-Week Twiggs Money Flow indicates medium-term buying support but long-term selling pressure.

JSE Overall Index

* Target calculation: 28500 – ( 31500 – 28500 ) = 25500

Brazil’s Bovespa index also shows medium-term buying support but long-term selling pressure. Respect of resistance at 58000 would indicate another test of primary support at 50000. Breakout above 58000 is unlikely, given global market conditions and falling iron ore prices, but would signal reversal to a primary up-trend.

Bovespa Index

* Target calculation: 50 – ( 58 – 50 ) = 42

FTSE 100 buyers scarce

The FTSE 100 index encountered resistance at 5400. Low volume indicates that buyers were scarce and another test of support at 5000 is likely. We are in a primary down-trend and failure of support would signal a decline to 4400*.

FTSE 100 Index

* Target calculation: 5000 – ( 5600 – 5000 ) = 4400

The DAX index is starting to rally on the weekly chart, with 13-week Twiggs Money Flow indicating medium-term buying pressure. Expect a test of 6000, but again we are in a primary down-trend and another test of 5000 is likely. Failure of support would signal a decline to 4000*.

German DAX Index

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