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Market lifts despite weak global economy

By Colin Twiggs
October 9th, 2014 3:00 a.m. EDT (6:00 p.m. AEDT)

Advice herein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no reader should act on the basis of any information contained herein without first having consulted a suitably qualified financial advisor.



Research & Investment: Performance

ASX200 Prime Momentum strategy returned +9.64%* for the 12 months ended 30th September 2014 compared to +5.93% for the benchmark ASX200 Accumulation Index. The quarter-end sell-off hurt performance of both the Momentum portfolio and the index, but two-year results for the portfolio remain above 20% p.a.

ASX200 Prime Momentum

* Results are unaudited and subject to revision.

US Outlook

Minutes of the September FOMC meeting highlight growing unease with the strong US Dollar and a weak global economy. The market read this as "low interest rates" and commenced a strong buying spree. Last year the quarter-end sell-off ended on October 9th after a 4.2% fall. This year's correction fell 4.7%, lasting 13 days so far compared to 15 days in 2013.

Roberto Dominguez at NY Daily News reports:

"The start of earnings season, with companies including Costco and Alcoa reporting quarterly profits that beat forecasts, also helped push the S&P 500 to its biggest rally in a year."

While Cullen Roche writes that the US fiscal deficit is shrinking:

"...tax receipts have surged by 7.7% year over year and are up 48% over the last 5 years. And while some of this is due to tax increases the vast majority is due to a healing private sector."

Bellwether transport stock Fedex continues its primary up-trend, signaling improved economic activity.

Fedex

No doubt boosted by a falling outlook for crude oil prices.

Nymex and Brent Crude

With positive news about, we should be careful not to forget the Fed's longer-term concern with a weak global economy. While this may drive oil prices even lower, the impact on international sales of major exporters will be closely watched.

S&P 500 recovery above 2000 would indicate the correction is over, while follow-through above 2020 would signal another advance. A 21-day Twiggs Money Flow trough above zero would signal a healthy up-trend. Reversal below 1925 is unlikely, but would test primary support at 1900/1910.

S&P 500

* Target calculation: 2000 + ( 2000 - 1900 ) = 2100

CBOE Volatility Index (VIX) retreated to 15%, indicating low volatility typical of a bull market.

VIX Index

Gold & Silver

Gold rallied off support at $1180 and is likely to test $1250/ounce. But the primary trend, as indicated by 13-week Twiggs Momentum below zero, remains down. Respect of resistance at $1250 would confirm this. Breach of primary support at $1180 would offer a long-term target of $1000*.

Spot Gold

* Target calculation: 1200 - ( 1400 - 1200 ) = 1000

Silver is also in a primary down-trend, retracing to test the new resistance level at $18.50/$19.00 per ounce. Respect would confirm the target of $15.50/ounce*.

Spot Silver

* Target calculation: 18.5 - ( 21.5 - 18.5 ) = 15.5

Interest Rates and the Dollar

The Dollar Index is retracing to test its new support level at 84.50. Respect would confirm a primary advance with a target of 89*. Rising 13-week Twiggs Momentum continues to indicate a healthy primary up-trend. Failure of support (84.50) is unlikely, but breach of the secondary trendline would warn of a correction to the primary line.

Dollar Index

* Target calculation: 84 + ( 84 - 79 ) = 89.00

The yield on ten-year Treasury Notes is again testing primary support at 2.30. Breach would signal a decline to 2.00*. A 13-week Twiggs Momentum peak below zero suggests a continued primary down-trend. Recovery above 2.65 is unlikely, but would indicate an advance to 3.00.

10-Year Treasury Yields

* Target calculation: 2.30 - ( 2.60 - 2.30 ) = 2.00

Low interest rates would weaken the Dollar and strengthen demand for gold.


A man's right to work as he will, to spend what he earns, to own property, to have the State as servant and not as master: these are the British inheritance. They are the essence of a free economy. And on that freedom all our other freedoms depend.

~ Margaret Thatcher

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