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By Colin Twiggs
January 29th, 2015 5:00 p.m. AEDT (1:00 a.m. ET)
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.
Performance for the period February 1st, 2014 to January 26th, 2015
Research & Investment's S&P 500 Prime Momentum strategy returned +28.9%* for the period, compared to +16.2% for the S&P 500 Total Return Index.
The ASX200 Prime Momentum strategy returned +7.6%* for the period, compared to +10.7% for the ASX200 Accumulation Index. ASX stocks have underperformed over the past year, but macroeconomic and volatility filters continue to indicate low to moderate risk and we maintain full exposure to equities in expectation of a recovery.
Divergence between the ASX 200 and S&P 500 may continue and investors should consider splitting their investment between the two markets.
* Results are unaudited and subject to revision.
Market Outlook: ASX rebounds
A low inflation outlook is likely to ease pressure on the Fed to raise interest rates. The S&P 500 is testing support at 2000. Breach would warn of another correction, but the primary trend is intact. Respect of the secondary trendline would suggest this is likely to continue. Rising 13-week Twiggs Money Flow indicates long-term buying pressure; decline below the rising trendline would again warn of a secondary correction.
* Target calculation: 2000 + ( 2000 - 1800 ) = 2200
CBOE Volatility Index is making more frequent penetrations of 20%, suggesting moderate risk. VIX ranging between 20% and 30% would warn of increased market stress.
The Nasdaq 100 is also testing support, at 4100, and breach of this level would warn of a correction. But the primary trend is strong and further 13-week Twiggs Money Flow troughs above zero would reinforce this.
* Target calculation: 4100 + ( 4100 - 3700 ) = 4500
Europe is buoyant after the ECB signaled further monetary easing (QE). Germany's DAX is heading for 11000* after breaking resistance at 10000. Recovery of 13-week Twiggs Momentum indicates continuation of the up-trend.
* Target calculation: 10000 + ( 10000 - 9000 ) = 11000
The Footsie has also recovered, testing long-term resistance at 6900/7000. Expect strong resistance at this level. Breakout would signal a fresh primary advance, with a long-term target of 8000*.
* Target calculation: 7000 + ( 7000 - 6000 ) = 8000
China is benefiting from falling oil prices, with the Shanghai Composite Index again testing resistance at 3400. Breakout would signal a fresh primary advance. Rising 13-week Twiggs Money Flow indicates strong (medium-term) buying pressure. The stimulus effect of lower energy prices may allow the PBOC scope to rein in monetary expansion, which would have a dampening effect on the current stock boom.
Discussion of monetary expansion would not be complete without mention of Japan where the BOJ has gone "all in" to curb long-term deflationary pressures. The Nikkei 225 Index is testing resistance at its 2007 high of 18000. Rising 13-week Twiggs Money Flow respecting the zero line suggests long-term buying pressure. Breakout above 18000 would signal another primary advance, with a target of 20000*.
* Target calculation: 18000 + ( 18000 - 16000 ) = 20000
Australia's ASX 200 has suffered from falling commodity prices over the past 12 months, with falling crude adding to the energy sector's woes in the last quarter. But an up-tick of 13-week Twiggs Money Flow hints at brighter days ahead. Breakout above 5650 would offer a target of 6000*.
* Target calculation: 5600 + ( 5600 - 5200 ) = 6000
The Daily chart shows the index completed a double bottom, breaking resistance at 5550, after twice testing primary support at 5120/5150. A 21-day Twiggs Money Flow trough above zero signals medium-term buying pressure. Follow-through above 5660 would confirm a fresh primary advance.
You don't make the poor richer by making the rich poorer.
Research & Investment Pty Ltd is a Corporate Authorized Representative (AR Number 384 397) of Andika Pty Ltd which holds an Australian Financial Services Licence (AFSL 297069).
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Important Warning About Simulated Results
Research & Investment (R&I) specialise in developing, testing and researching investment strategies and systems. Within the R&I web site and newsletters, you will find information about investment strategies and their performance. It is important that you understand that results from R&I research are simulated and not actual results.
No representation is made that any investor will or is likely to achieve profits or losses similar to those shown.
Simulated performance results are generally prepared with the benefit of hindsight and do not involve financial risk. No modeling can completely account for the impact of financial risk in actual investment. Account size, brokerage and slippage may also diverge from simulated results. Numerous other factors related to the markets in general or to the implementation of any specific investment system cannot be fully accounted for in the preparation of simulated performance results and may adversely affect actual investment results.
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