S&P 500 bullish but Shanghai spoils the party

By Colin Twiggs
May 28th, 2015 6:00 p.m. AET (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.

Revised Performance

Some trades were incorrectly placed in our S&P 500 Momentum model portfolio and we have revised the unaudited performance figures published at the end of April 2015. The correct figures are:

S&P 500 Index

No changes to your portfolio are required. ASX performance is unaffected.

Market Insight

The S&P 500 and Dow are testing resistance, suggesting that another advance, but the Shanghai Composite plunged 6.5% today and is bound to unsettle markets. From the Wall Street Journal:

Stocks in Shanghai plummeted, as stake sales of two state-owned banks by a Chinese sovereign-wealth fund rattled investors.

The Shanghai Composite Index closed 6.5% lower, its second-largest daily fall this year, after disclosures that Central Huijin Investment was selling shares of Industrial & Commercial Bank of China and China Construction Bank.

The Shanghai Composite broke resistance at 4500, indicating continuation of the advance, but has now fallen sharply to test the new support level.

Shanghai Composite Index

* Target calculation: 3500 + ( 3500 - 2500 ) = 4500

Economic data has been warning of a slow-down for some time.

Turmoil in emerging markets would test resilience of the US bull market.

North American Stocks

The S&P 500 recovered above 2120 after another test of 2100. The prevalence of long-tailed candles on the weekly chart suggest medium-term buying pressure. A 13-week Twiggs Money Flow trough above zero also indicates long-term buying pressure. Expect an advance to 2200*. Dow Jones Industrial Average confirmation would further strengthen the bull signal. Reversal below 2100 is unlikely, but would warn of a correction to test the ascending trendline.

S&P 500 Index

* Target calculation: 2120 + ( 2120 - 2040 ) = 2200

CBOE Volatility Index (VIX) remains near 2013 lows, indicating low risk typical of a bull market.

S&P 500 VIX

St Louis Fed Financial Stress index below -1.0 likewise displays low levels of stress in financial markets.

St Louis Fed Financial Stress Index

Dow Jones Industrial Average continues to test resistance at 18300. Breakout would offer a target of 19000* and confirm the S&P 500 bull signal. Reversal below 18000 is unlikely, but would warn of a correction to test the primary trendline and support at 17000.

Dow Jones Industrial Average

* Target calculation: 18300 + ( 18300 - 17600 ) = 19000

Canada's TSX 60 is testing resistance at 890. Breakout would confirm the end of the correction and indicate another test of long-term resistance at 900. 13-Week Twiggs Momentum holding above zero continues to signal a primary up-trend. Breakout above 900 would offer a long-term target of 1000*.

TSX 60 Index

* Target calculation: 900 + ( 900 - 800 ) = 1000


Germany's DAX broke its descending trendline, indicating another attempt at 12500. Recovery above 12000 would strengthen the signal. A 13-week Twiggs Money Flow trough above zero would also confirm long-term buying pressure. Reversal below 11000 is unlikely.


Shallow retracement on the Footsie suggests buying pressure. Gradual decline of 13-week Twiggs Money Flow is typical of a secondary correction or consolidation. Breakout above 7100 would confirm a primary advance, offering a long-term target of 8000*.

FTSE 100

* Target calculation: 7000 + ( 7000 - 6000 ) = 8000


Japan's Nikkei 225 Index broke resistance at 20000, offering a target of 22000*. Recovery of 13-week Twiggs Money Flow above the descending trendline strengthens the signal.

Nikkei 225 Index

* Target calculation: 20000 + ( 20000 - 18000 ) = 22000

India's Sensex remains hesitant, retreating from resistance at 28000. Breakout above 28000 and the descending trendline would signal another attempt at 30000, but 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of primary support at 26500 would warn of a primary down-trend.



The ASX 200 is also hesitant, testing support between 5650 and 5550. Recovery above 5750 would signal the correction is over and another test of 6000 is likely. Mild decline on 13-week Twiggs Money Flow indicates medium-term selling pressure, typical of a secondary correction not a reversal. Breach of 5550, however, would warn of a test of primary support at 5120.

ASX 200

* Target calculation: 6000 + ( 6000 - 5750 ) = 6250

Teach us that wealth is not elegance; that profusion is not magnificence; and that splendour is not beauty. Teach us that taste is a talisman which can do greater wonders than the millions of the loanmonger. Teach us that to vie is not to rival, and to imitate not to invent. Teach us that pretension is a bore. Teach us that wit is excessively good-natured, and, like champagne, not only sparkles, but is sweet....

~ Benjamin Disraeli, The Young Duke (1831)


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