ASX breaks support
By Colin Twiggs
June 4th, 2015 6:00 p.m. AET (4:00 a.m. EDT)
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The ASX 200 broke through the band of support between 5650 and 5550, warning of a test of primary support at 5120. Declining 13-week Twiggs Money Flow indicates medium-term selling pressure, typical of a secondary correction not a reversal.
If we look at the two biggest sectors on a monthly chart, Metals & Mining has been in a down-trend since 2011 and is testing the lows of 2008. The Australian economy withstood the decline primarily because of low employment in the mining sector relative to its size.
Banks held up surprisingly well on the back of a resilient real estate market — I would call it a housing bubble because of the high average price to household income ratio. Pressure is mounting to improve bank capital ratios (especially after the Murray Inquiry) and curb aggressive lending. The long-awaited correction is under way and likely to find support between 82 and 84. The weight of the sector means the ASX 200 index is likely to follow.
Twiggs Momentum, however, shows a bearish divergence and has crossed below zero, warning of a (sector) reversal. Breach of primary support would strengthen the signal.
The S&P 500 is ranging in a bullish narrow band between 2100 and 2120 on the daily chart. 21-Day Twiggs Money Flow holding above zero suggests moderate buying pressure. Upward breakout would signal an advance to 2200*, while reversal below 2100 would warn of a correction to 2040/2050. Look for confirmation from the Dow Jones Industrial Average.
* Target calculation: 2120 + ( 2120 - 2040 ) = 2200
CBOE Volatility Index (VIX) indicates low risk typical of a bull market. The 63-day moving average holding below 20 reinforces the signal.
Dow Jones Industrial Average found support at 18000. Expect another test of resistance at 18300. Breakout would offer a target of 19000*. 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 continues to test 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 suggests a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.
* Target calculation: 900 + ( 900 - 800 ) = 1000
Germany's DAX retreated from resistance at 12000. Declining 13-week Twiggs Money Flow warns of further selling pressure. Reversal below 11000 is unlikely, but would offer a target of 10000*.
* Target calculation: 11000 - ( 12000 - 11000 ) = 10000
The Footsie is ranging in a bullish narrow band on the weekly chart. 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*. Reversal below 6900 is unlikely, but would warn of a correction to 6700.
* Target calculation: 7000 + ( 7000 - 6000 ) = 8000
The Shanghai Composite is testing 5000 after a brief retracement to 4500. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. I am wary of long-term prospects for the Chinese economy and believe the current accelerating up-trend is likely to end in a blow-off.
* Target calculation: 3500 + ( 3500 - 2500 ) = 4500
Japan's Nikkei 225 Index is headed for a target of 22000*, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure.
* Target calculation: 20000 + ( 20000 - 18000 ) = 22000
India's Sensex is headed for a test of primary support at 26500. Succesive peaks below zero on 13-week Twiggs Money Flow warn of reversal to a primary down-trend. Breach of primary support would confirm. Recovery above 28000 is unlikely, but would signal another test of 30000.
Life is a school of probability.
~ Walter Bagehot
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