Another week another crisis
By Colin Twiggs
July 9th, 2015 6:30 p.m. AET (4:30 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.
The S&P 500 Prime Momentum strategy returned +22.67%* for the 12 months ended 30th June 2015, outperforming the S&P 500 Total Return Index by 15.25%. Macroeconomic and volatility filters continue to indicate low to moderate risk and we maintain full exposure to equities.
The ASX200 Prime Momentum strategy returned -4.02%* for the 12 months ended 30th June 2015. Underperformance is primarily attributable to sharp falls in Sirtex (SRX) and Resmed (RMD) after disappointing clinical trials. Concentrated portfolios are always more volatile because of high exposures to individual stocks, but they also tend to perform better in the long-term — which is why we recommend a minimum investment horizon of 5 years.
Splitting your investment between the ASX 200 and S&P 500 strategies would enhance diversification and help to reduce volatility.
* Results are unaudited and subject to revision.
Europe and Greece
The crisis in Greece continues, dragging down stocks across Europe.
Germany's DAX broke support at 11000, warning of a decline to 10000. Reversal of 13-week Twiggs Money Flow below zero would warn of a primary down-trend. Recovery above 11500 is unlikely, but would signal a fresh advance.
The Footsie found short-term support at 6500. Decline of 13-week Twiggs Money Flow below zero warns of a primary down-trend. A peak below zero or breach of support at 6100 would confirm.
* Target calculation: 6700 - ( 7100 - 6700 ) = 6300
Events have been overtaken by collapse of Chinese stocks. The Shanghai Composite found support at 3500, but government efforts are unlikely to stem the rout. Reversal of 13-week Twiggs Money Flow below zero would warn of further selling pressure. Expect support at the primary trendline, around the 3000 level.
* Target calculation: 4000 - ( 5000 - 4000 ) = 3000
Japan's Nikkei 225 was unsettled by events in Shanghai, breaking support at 20000 to warn of a correction. The decline on 13-week Twiggs Money Flow is gradual, suggesting a secondary correction.
* Target calculation: 20000 + ( 20000 - 18000 ) = 22000
India's Sensex retreated below 28000 warning of another test of primary support at 26500. A 13-week Twiggs Money Flow trough above zero, however, would indicate medium-term buying pressure. Breach of support at 26500 is also unlikely, but would signal a primary down-trend with support at 23000*.
* Target calculation: 26500 - ( 30000 - 26500 ) = 23000
The S&P 500 is testing medium-term support at 2040. Declining 13-week Twiggs Money Flow suggests a test of primary support (1980/2000) but today's rally in China may alleviate this. The index is likely to range below 2120 until the situations in both China and Greece reach a conclusion.
* Target calculation: 2120 + ( 2120 - 2040 ) = 2200
The CBOE Volatility Index (VIX) is fairly subdued but likely to break 20, indicating moderate risk.
Dow Jones Industrial Average broke support at 17600. Follow-through below 17500 would warn of a test of primary support at 17000. Decline of 13-week Twiggs Money Flow below zero indicates strong selling pressure but this was aggravated by yesterday's technical trading halt on the NYSE and recovery above zero is likely.
Canada's TSX 60 broke support at 850, warning of a test of primary support at 800. Decline of 13-week Twiggs Momentum below zero suggests a primary down-trend. Recovery above the descending trendline is unlikely, but would indicate the correction is over.
* Target calculation: 850 - ( 900 - 850 ) = 800
The ASX 200 found support at 5400, highlighted by the long tail on today's candle. Breakout above the trend channel is still unlikely, but would indicate the correction is over. It would be prudent, in the current climate, to wait for a higher trough or some other confirmation. Rising 21-day Twiggs Money Flow indicates moderate buying pressure.
Never let a serious crisis go to waste.
~ Rahm Emanuel
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