S&P 500 bullish but Shanghai spoils the party
By Colin Twiggs
May 28th, 2015 6:00 p.m. AET (4:00 a.m. EDT)
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.
Some trades were incorrectly placed in our S&P 500 Momentum model portfolio and we have revised the unaudited performance figures published at the end of April 2015. The correct figures are:
No changes to your portfolio are required. ASX performance is unaffected.
The S&P 500 and Dow are testing resistance, suggesting that another advance, but the Shanghai Composite plunged 6.5% today and is bound to unsettle markets. From the Wall Street Journal:
Stocks in Shanghai plummeted, as stake sales of two state-owned banks by a Chinese sovereign-wealth fund rattled investors.
The Shanghai Composite Index closed 6.5% lower, its second-largest daily fall this year, after disclosures that Central Huijin Investment was selling shares of Industrial & Commercial Bank of China and China Construction Bank.
The Shanghai Composite broke resistance at 4500, indicating continuation of the advance, but has now fallen sharply to test the new support level.
* Target calculation: 3500 + ( 3500 - 2500 ) = 4500
Economic data has been warning of a slow-down for some time.
Barclays says China slide "undeniable", here showing M2 at multi-year lows pic.twitter.com/3i8MFxGA5k— David Schawel (@DavidSchawel) May 22, 2015
Turmoil in emerging markets would test resilience of the US bull market.
North American Stocks
The S&P 500 recovered above 2120 after another test of 2100. The prevalence of long-tailed candles on the weekly chart suggest medium-term buying pressure. A 13-week Twiggs Money Flow trough above zero also indicates long-term buying pressure. Expect an advance to 2200*. Dow Jones Industrial Average confirmation would further strengthen the bull signal. Reversal below 2100 is unlikely, but would warn of a correction to test the ascending trendline.
* Target calculation: 2120 + ( 2120 - 2040 ) = 2200
CBOE Volatility Index (VIX) remains near 2013 lows, indicating low risk typical of a bull market.
St Louis Fed Financial Stress index below -1.0 likewise displays low levels of stress in financial markets.
Dow Jones Industrial Average continues to test resistance at 18300. Breakout would offer a target of 19000* and confirm the S&P 500 bull signal. Reversal below 18000 is unlikely, but would warn of a correction to test the primary trendline and support at 17000.
* Target calculation: 18300 + ( 18300 - 17600 ) = 19000
Canada's TSX 60 is testing resistance at 890. Breakout would confirm the end of the correction and indicate another test of long-term resistance at 900. 13-Week Twiggs Momentum holding above zero continues to signal a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.
* Target calculation: 900 + ( 900 - 800 ) = 1000
Germany's DAX broke its descending trendline, indicating another attempt at 12500. Recovery above 12000 would strengthen the signal. A 13-week Twiggs Money Flow trough above zero would also confirm long-term buying pressure. Reversal below 11000 is unlikely.
Shallow retracement on the Footsie suggests buying pressure. Gradual decline of 13-week Twiggs Money Flow is typical of a secondary correction or consolidation. Breakout above 7100 would confirm a primary advance, offering a long-term target of 8000*.
* Target calculation: 7000 + ( 7000 - 6000 ) = 8000
Japan's Nikkei 225 Index broke resistance at 20000, offering a target of 22000*. Recovery of 13-week Twiggs Money Flow above the descending trendline strengthens the signal.
* Target calculation: 20000 + ( 20000 - 18000 ) = 22000
India's Sensex remains hesitant, retreating from resistance at 28000. Breakout above 28000 and the descending trendline would signal another attempt at 30000, but 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of primary support at 26500 would warn of a primary down-trend.
The ASX 200 is also hesitant, testing support between 5650 and 5550. Recovery above 5750 would signal the correction is over and another test of 6000 is likely. Mild decline on 13-week Twiggs Money Flow indicates medium-term selling pressure, typical of a secondary correction not a reversal. Breach of 5550, however, would warn of a test of primary support at 5120.
* Target calculation: 6000 + ( 6000 - 5750 ) = 6250
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