S&P 500 bullish but Europe and China encounter resistance

By Colin Twiggs
November 9th, 2014 10:30 a.m. AEDT (6:30 p.m. ET)

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  • US stocks confirm their bull market
  • European stocks encounter resistance
  • China and Hong Kong likewise
  • ASX is rising but the Aussie Dollar falls

Retracement of the S&P 500 respected its new support level at 2000, confirming a primary advance with a target of 2150*. Recovery of 13-week Twiggs Money Flow above the declining trendline indicates buyers are back in control. Reversal below 2000 and the rising trendline is unlikely, but would signal another correction.

S&P 500 Index

* Target calculation: 2000 + ( 2000 - 1850 ) = 2150

CBOE Volatility Index (VIX) at 13 indicates low risk typical of a bull market.

S&P 500 VIX

Germany's DAX found resistance at 9400 and retracement to test support at 9000 is likely. Failure of the former primary support level at 8900/9000 would confirm a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero would also indicate that sellers dominate.


* Target calculation: 9000 - ( 10000 - 9000 ) = 8000

The Footsie also encountered resistance, at 6500/6560. Respect of this level would warn of a primary down-trend, but rising 13-week Twiggs Money Flow suggests medium-term buying pressure.

FTSE 100

China's Shanghai Composite Index is testing its 2013 high of 2440. Declining 13-week Twiggs Money Flow warns of (medium-term) resistance.

Shanghai Composite Index

* Target calculation: 2400 + ( 2400 - 2300 ) = 2500

Hong Kong's Hang Seng Index also found resistance, at 24000. Reversal below 23000 would confirm a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero would strengthen the bear signal.

Hang Seng Index

The ASX 200, influenced by both the US and China, is testing resistance at 5550. Rising 13-week Twiggs Money Flow (above zero) indicates medium-term buying pressure. Expect a test of 5650/5660. Reversal below 5380/5400 is less likely, but would warn that sellers have resumed control. I have lowered the target to 6000* because of constant back-filling in recent months.

ASX 200

* Target calculation: 5650 + ( 5650 - 5300 ) = 6000

Currency Wars

Japan's central bank has signaled more asset purchases (QE). The Government Pension Investment Fund (GPIF) announced that they are reducing their exposure to JGBs (government bonds) and will increase their exposure to Japanese and overseas stocks. Other pension funds are likely to follow suit to reduce their vulnerability to future bond yield fluctuations. Governor Kuroda has effectively 'gone nuclear' on inflation. The BOJ as the major holder of JGBs means the government is effectively printing money to fund its deficit. A dangerous path to follow. But if anyone has the discipline to pull this off without risking hyperinflation, it would be the Japanese.

The Yen fell sharply against the Dollar and is likely to maintain a primary down-trend for some time. Effective devaluation of the Yen is likely to lead to concern amongst Japan's trading partners, notably the US and China. Counter-measures, especially by China, are likely. The US, committed to maintaining the Dollar's reserve currency status, may be more tolerant. But I doubt that Washington will passively accept their Asian counterparts undermining US trade competitiveness.

Nikkei 225 Index

Japan's Nikkei 225 Index broke resistance at 16300, signaling an advance with a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of another correction.

Nikkei 225 Index

* Target calculation: 16000 + ( 16000 - 14000 ) = 18000

That's all from me for today. Take care.

Passionate hatred can give meaning and purpose to an empty life. Thus people haunted by the purposelessness of their lives try to find a new content not only by dedicating themselves to a holy cause but also by nursing a fanatical grievance. A mass movement offers them unlimited opportunities for both.

~ Eric Hoffer


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