S&P 500 and Europe: Likely to blow over
By Colin Twiggs
March 19th, 2013 4:00 a.m. EST (7:00 p.m. AEDT)
Question: Is the outcry in Europe going to tip the S&P 500 into a correction?
Answer: The outcome is uncertain. While there is a strong case for giving depositors and bondholders a haircut, the timing — so soon after an inconclusive Italian election — could not be worse. But let's see what the market are saying...
Longish tail on the S&P 500 shows buying support at the close. Mild bearish divergence (mild because TMF has leveled out rather than falling sharply) on 21-day Twiggs Money Flow indicates medium-term selling pressure. We are likely to see retracement to the first line of support — at the previous high of 1525/1530 — but only breach of this level and the rising trendline would warn of a correction. Target for the current advance is 1600*.
* Target calculation: 1525 + ( 1525 - 1475 ) = 1575
VIX Volatility Index remains low — near its 2005 lows at 0.10. Breakout above 0.20 would be a warn of rising uncertainty.
The FTSE 100 exhibits an even longer tail, but bearish divergence on 21-day Twiggs Money Flow also indicates medium-term selling pressure. Reversal below the latest rising trendline (6400) would warn of a correction, while breakout above 6550 would continue the advance to 6800*.
The DAX showed even greater resilience, closing back above 8000. Follow-through above 8100 would signal a fresh primary advance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure.
There is bound to be some turbulence but markets are showing resilience and the storm is likely to blow over.
Compassion is the antitoxin of the soul: Where there is compassion even the most poisonous impulses remain relatively harmless.
~ Eric Hoffer