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S&P 500 rallies despite credit losses and falling retail sales

By Colin Twiggs
April 14, 2016 6:00 p.m. AEST (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.

Breach of the descending trendline on the weekly chart of June Light Crude futures (CLM2016) suggests that a bottom is forming. A second test of primary support that results in a higher trough would be a bullish sign. The market is buoyant on expectations of a production freeze being agreed between the Russians and Saudis, but there are a number of other producers such as Iran who may not play ball. Breach of $32 is unlikely but would offer a target of $22/barrel*. Further consolidation between $32 and $42 remains likely.

WTI Light Crude June 2016 Futures

Global

Dow Jones Global Index also penetrated its descending trendline, suggesting that a bottom is forming. Breach of 300 remains likely and would indicate another test of primary support at 270. A higher trough would be a bullish sign, suggesting reversal to an up-trend, but would only be confirmed by follow-through above the present high. 13-Week Twiggs Momentum recovery above zero would be mildly bullish but further low peaks would indicate that bears still dominate.

Dow Jones Global Index

* Target calculation: 270 - ( 300 - 270 ) = 240

North America

Retail sales (excluding motor vehicles and parts) followed light vehicle sales lower in March with a year-on-year change dipping below 2 percent.

US Retail Sales ex-Motor Vehicles and Parts

The market is headed for a test of resistance at 2100 after "upbeat" results from J P Morgan (JPM). 13-Week Momentum is rising and breakout, while unlikely, is possible. Earnings releases for a number of financial heavyweights are due Thursday which should give a good idea as to how the quarter is likely to unfold. I remain wary of this rally but will heed Jesse Livermore's advice: never argue with the tape. Reversal below 2000 would warn of another test of primary support at 1800.

S&P 500 Index

A CBOE Volatility Index (VIX) at a low 14 indicates that (short-term) market risk has eased. But long-term measures continue to warn of elevated risk.

S&P 500 VIX

Canada's TSX 60 is testing resistance at 800. Penetration of the descending trendline suggests that a bottom is forming. Respect of 800 would warn of another test of primary support. Rising 13-week Twiggs Momentum is encouraging but a low peak above zero would indicate that bears still dominate.

TSX 60 Index

Europe

Germany's DAX continues to test resistance at 10000. Breakout would indicate a test of the descending trendline. Declining 13-week Twiggs Momentum below zero warns of continuation of the primary down-trend. Retreat below 9500 would signal another decline.

DAX

* Target calculation: 9500 - ( 11000 - 9500 ) = 8000

The Footsie is more bullish, having penetrated its descending trendline and is expected to test 6500. 13-Week Twiggs Momentum crossed above zero but a low peak would warn that bears still dominate. Reversal below 6000 would warn of another test of primary support at 5500. A bottom is forming, so breach of primary support is unlikely. Completion of a higher trough would signal a primary up-trend.

FTSE 100

* Target calculation: 6000 - ( 6500 - 6000 ) = 5500

Asia

The Shanghai Composite Index is recovered above 3000. A more dovish stance from the Fed eased pressure on the Yuan and increased liquidity but there are still many rivers to cross (and mountains to climb) before there is a solid foundation for an economic recovery. Declining 13-week Twiggs Momentum below zero continues to indicate a strong primary down-trend.

Shanghai Composite Index

* Target calculation: 3000 - ( 3600 - 3000 ) = 2400

If we wanted to create an index of consumer sentiment in China, the almost 38,000 approvals from Australia's Foreign Investment Review Board (FIRB) in 2014-2015, to buy real estate in Australia, may be a good place to start.

Japan's Nikkei 225 Index is in a strong down-trend. Respect of resistance at 17000 is likely and would warn of another test of primary support at 15000. Declining 13-Week Twiggs Momentum below zero confirms bearish sentiment.

Nikkei 225 Index

* Target calculation: 17000 - ( 20000 - 17500 ) = 15000

India's Sensex broke resistance at 25000 and 13-week Twiggs Momentum is recovering. Penetration of the descending trendline would suggest that a bottom is forming. Respect, indicated by reversal below 25000, would warn of another test of 22500*/23000.

SENSEX

* Target calculation: 25000 - ( 27500 - 25000 ) = 22500

Australia

The ASX 200 recovered above 5000. Penetration of the descending trendline would suggest that a bottom is forming, though I must admit I would be skeptical. Respect of resistance at 5300 is likely and would warn of another test of primary support at 4700. A low peak on 13-week Twiggs Momentum would warn that bears still dominate. Reversal below 5000 would warn of another (primary) decline.

ASX 200

* Target calculation: 4700 - ( 5200 - 4700 ) = 4200

Banks are the biggest single component of major ASX indices. The ASX 300 Banks Index remains weak and reversal below 72.00 would warn of another decline. Peaks below zero on 13-week Twiggs Momentum flag a primary down-trend.

ASX 300 Banks

What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.

~ Adam Smith: The Wealth of Nations (1776)

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