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Time for the "Grexit"

By Colin Twiggs
June 29th, 2015 4:30 p.m. AET (2:30 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.


Greece is expected to default this week after creditors refused an extension for Greeks to vote in a July 5th referendum on whether to accept the austerity terms offered. Banks are likely to remain closed until the crisis is resolved.

Acceptance of austerity terms would be unlikely to resolve the crisis, simply kicking the can down the road until the next default, as the Greek economy further contracts. Default remains the only option. The Greek government will be forced to issue an alternative currency (Drachmas) in order to prevent an economic collapse. A floating exchange rate at a substantial discount to the euro would restore competitiveness. Exit from the (euro) currency union does not have to be permanent. It would certainly be in the interests of the rest of Europe to assist Greece through this difficult period and to leave the door open for its eventual return. For Greece to exit the European Union would be a political disaster, the costs of which would far exceed that of any temporary assistance.

EURUSD

* Target calculation: 1.20 - ( 1.40 - 1.20 ) = 1.00

The euro has declined since 2008 from a high of $1.60 to a low of $1.05. An orderly exit (or another round of austerity) would test support at $1.05. A disorderly exit would almost certainly breach this level, offering an immediate target of parity* against the dollar.

Concerns about the Greek contagion spreading to Italy or Spain are exaggerated. Italy's MIB index is testing its 2009 highs, with a long tail on the latest monthly candle reflecting buying pressure.

FTSE MIB

Spain's Madrid General Index is also approaching its 2009 high of 1250. Respect of the rising trendline would confirm a healthy primary up-trend.

Madrid General Index

Germany's DAX found support at 11000 and recovery above 11600 would signal a fresh advance.

DAX

Outside of the Euro-zone, the Footsie continues to test support at 6700, indicating weakness. Breach would warn of a test of 6000.

FTSE 100

* Target calculation: 6700 - ( 7100 - 6700 ) = 6300

North America

The S&P 500 is encountering stubborn resistance at 2120. Declining 13-week Twiggs Money Flow indicates medium-term selling pressure. The index is likely to range between 2040 and 2120 until there is some certainty as to how the situation in Europe will be resolved.

S&P 500 Index

* Target calculation: 2120 + ( 2120 - 2040 ) = 2200

The long-term chart of the CBOE Volatility Index (VIX) displays low risk levels typical of a bull market.

S&P 500 VIX

Canada's TSX 60 found support at 850. Recovery of 13-week Twiggs Momentum above zero would signal a buy opportunity. Breakout above the descending trendline at 875 would strengthen the signal. Reversal below 850 however, would offer a target of 800*.

TSX 60 Index

* Target calculation: 850 - ( 900 - 850 ) = 800

Asia

Asia is a mixed bag, with the Shanghai Composite undergoing a sharp blow-off following a strong, accelerating up-trend. Bearish divergence on 13-week Twiggs Money Flow warns of medium-term selling pressure, but breach of support at 4000 would offer a target of 3000*.

Shanghai Composite Index

* Target calculation: 4000 - ( 5000 - 4000 ) = 3000

Japan's Nikkei 225 respected support at 20000 and follow-through above 20500 suggests an advance to 22000*. Recovery of 13-week Twiggs Money Flow above its descending trendline would strengthen the signal.

Nikkei 225 Index

* Target calculation: 20000 + ( 20000 - 18000 ) = 22000

India's Sensex is testing resistance at 28000 after respecting primary support at 26500. Breakout would signal another test of 30000. A higher trough on 13-week Twiggs Money Flow indicates medium-term buying pressure. Breach of primary support is unlikely, but would warn of a primary down-trend with support at 23000*.

SENSEX

* Target calculation: 26500 - ( 30000 - 26500 ) = 23000

Australia

The ASX 200 broke medium-term support at 5450, warning of a test of primary support at 5150. Decline on 13-week Twiggs Money Flow is gradual, indicating medium-term selling pressure. Recovery above 5650 and the descending trendline is unlikely at this stage, but would present a buy opportunity.

ASX 200

A pessimist sees the difficulty in every opportunity;
an optimist sees the opportunity in every difficulty.

~ Winston Churchill

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