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Challenged by gravity
By Colin Twiggs
May 19, 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.
91 Percent of the S&P 500 have reported earnings for the first quarter 2016, with estimated earnings (as reported) of $21.53 compared to $21.81 for Q1 2015, a fall of 1.3%. And trailing 12-month earnings of $86.25 versus $86.53 for 2015, a fall of 0.3%. Earnings estimates are provided by Standard & Poors.
Comparing Q1 2016 sector earnings (as reported) to Q1 2015, standout sectors were Health Care (+28%) and Industrials (+98% albeit off a low base), while Energy (losses increased by 177%) and Materials (-63%) were once again the worst performers. Financials, Information Technology and Utilities also struggled with more than 10% fall in earnings.
Poor results, especially in Retail have dragged on stock performance, with the S&P 500 struggling to maintain upward momentum. Declining 21-day Money Flow indicates medium-term selling pressure. Breach of medium-term support at 2040 would warn of another correction. Primary support (1800 - 1830) at this stage, however, looks secure.
Dow Jones Industrial Average faces a similar challenge, testing support at 17500.
A CBOE Volatility Index (VIX) at 16 indicates low (short-term) market risk. Long-term measures have also eased.
Canada's TSX 60 is testing resistance at 820. Respect is likely and would warn of another test of primary support at 680 - 700. Rising 13-week Twiggs Momentum is encouraging but a low peak above zero would indicate that bears still dominate.
Germany's DAX slipped back below 10000, warning of another correction. Breach of 9500 would confirm. Respect of the zero line by 13-week Twiggs Momentum (from below) would confirm continuation of the primary down-trend.
* Target calculation: 9500 - ( 11000 - 9500 ) = 8000
The Footsie is more bullish, with rising 13-week Money Flow signaling buying pressure. Respect of support at 6000 would suggest another advance.
* Target calculation: 6400 + ( 6400 - 6000 ) = 6800
The Shanghai Composite Index is headed for another test of support at 2700 despite a surge of activity in the housing (and commodities) markets. Indications that the Fed may raise interest rates in June will increase pressure on the Yuan. Declining 13-week Twiggs Momentum below zero continues to indicate a strong primary down-trend.
* Target calculation: 3000 - ( 3600 - 3000 ) = 2400
Japan's Nikkei 225 Index is gradually lifting off primary support at 15000. But the rally lacks conviction and a break below the channel would warn of another decline.
* Target calculation: 15000 - ( 18000 - 15000 ) = 12000
India's Sensex is more bullish, testing resistance at 26000, with rising 13-week Money Flow. Breakout would suggest that a bottom is forming. Although there could be another test of primary support at 22500 - 23000, signaled by retreat below 25000.
A weaker Australian Dollar and declining wage growth both support a bearish view of the Australian economy. The ASX 200 encountered resistance at 5400 and reversal below 5200 would warn of another test of primary support. Penetration of the rising trendline by 13-week Money Flow that buying pressure is easing. Reversal below zero would warn of another decline — as would retreat below 5000.
* Target calculation: 4700 - ( 5400 - 4700 ) = 4000
Banks difficulties are not yet over and reversal below 78.00 would warn of another test of primary support. Reversal of 13-week Twiggs Money Flow below zero warns of another decline.
Adlai Stevenson was campaigning against Eisenhower in 1952 when a supporter called out "Governor Stevenson, all thinking people are for you!" Stevenson answered, "That's not enough. I need a majority."
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