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S&P 500 Bull Market Continues/
ASX Improves

By Colin Twiggs
August 25, 2017 10:30 p.m. EDT (12:30 p.m. AEST)

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Colin Twiggs is a director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

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The S&P 500 continues with a secondary correction that is likely to test the long-term rising trendline and support at 2400. Bearish divergence on Twiggs Money Flow warns of selling pressure but this seems secondary in nature.

S&P 500

Target 2400 + ( 2400 - 2300 ) = 2500

Twiggs Volatility (21-day), at 0.63% for the S&P 500, is way below the 1.5% warning level for elevated market risk.

S&P 500 with Twiggs Volatility

The yield curve is flattening, with the 10-year minus 3-month Treasury Yield Differential close to 1.0%. But this is still well above the 0.5% early-warning level (a negative yield curve, where the Yield Differential falls below zero, is normally followed by a recession within 6 to 12 months).

Yield Differential

Fed monetary policy remains accommodative, with currency in circulation expanding at a healthy annual rate of 6.9%.

Currency in Circulation

The bull market remains on track for further gains.

Australia: ASX Improves

The ASX 200 continues to consolidate in a narrow line between 5650 and 5800. Rising Twiggs Money Flow (21-day) warns of short-term buying pressure. Expect a test of resistance at 5800. Breakout would signal a primary advance, testing 6000, but breach of support at 5650 remains as likely and would warn of a primary down-trend.

ASX 200

The large cap ASX 50 is historically less volatile than its S&P 500 counter-part. While the Australian index has some smaller stocks (IPL market cap $5.7 bn compared to lowest-weight S&P 500 NWS of $10 bn in AUD) the higher dividend yield tends to compensate. That difference has reversed recently but Twiggs Volatility (21-day) on the ASX 50 is also falling, reaching 0.92% this week.

ASX 50 with Twiggs Volatility

Currency growth remains weak (below 5% per year), indicating that the economy still faces headwinds.

Australia: Currency Growth

Iron ore continues its extended bear market rally. The next correction is likely to find support above the primary level at 53.

Iron Ore

ASX 300 Metals & Mining is testing resistance at its January/February highs. Breakout above 3240 would signal a primary advance. Expect some profit-taking but reversal below primary support at 2730 is now unlikely.

ASX 300 Metals & Mining

The ASX 300 Banks index breached support at 8500, however, and continues to drag on the broad market index. Declining Twiggs Money Flow warns of selling pressure. Follow-through below 8400 would confirm another test of primary support at 8000.

ASX 300 Banks

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.

~ Sir John Templeton



 
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