Bear market - brief respite
By Colin Twiggs
October 14th, 2015 5:30 p.m. AEDT (2:30 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.
Research & Investment: Performance at 30th September 2015
The S&P 500 Prime Momentum strategy returned +12.05%* for the 12 months ended 30th September 2015, compared to -0.61% for the S&P 500 Total Return Index.
We reduced exposure to equities on 21st August 2015 (cash holding is 75.3% of portfolio value) and will maintain this position until macroeconomic and volatility filters indicate market risk has declined.
The ASX 200 Prime Momentum strategy continues to trail the benchmark index after sharp falls in Sirtex (SRX) and Resmed (RMD) earlier in the year. Performance for the 12 months ended 30th September 2015 narrowed to -6.47%*, compared to -0.68% for the ASX 200 Accumulation Index. Concentrated portfolios are more volatile because of high exposures to individual stocks, but they also tend to perform better in the long-term — which is why we recommend a minimum investment horizon of 5 years.
Cash holdings are 58.5% of portfolio value. This will be maintained until macroeconomic and volatility filters indicate market risk has declined.
* Results are unaudited and subject to revision.
North America
The S&P 500 is retracing to test short-term support at 2000. Failure would warn of another test of support at 1870, while respect would indicate continuation of the bear rally to test resistance at the high of 2130. Bullish divergence on 21-day Twiggs Money Flow indicates (medium-term) buying pressure. The market remains bearish, however, having broken primary support at 2000, and respect of 2130 would warn of another test of support at 1870.
* Target calculation: 2000 + ( 2000 - 1870 ) = 2130
The CBOE Volatility Index (VIX) below 20 indicates market risk is easing. We need to remain vigilant for the next few weeks. At least until we see a peak below 20.
NYSE short sales remain subdued.
Dow Jones Industrial Average similarly retraced to test support at 17000 on the weekly chart. 13-Week Twiggs Money Flow holding above zero indicates buying pressure. Respect of support would again indicate a rally to test the previous high (18300), failure would warn of another test of primary support at 16000.
Canada's TSX 60 respected resistance at 825. Reversal below 800 would warn of another decline; breach of 775 would confirm. Weak 13-week Twiggs Momentum, below zero, signals the market is still bearish.
* Target calculation: 775 - ( 825 - 775 ) = 725
Europe
Germany's DAX remains weak, with the index retracing to test support at 10000 and 13-week Twiggs Money Flow below zero. Reversal below 10000 is likely and would warn of another decline; follow-through below 9500 would confirm. Recovery above 10500 is unlikely but would indicate continuation of the bear rally.
The Footsie is more resilient, with 13-week Twiggs Money Flow holding above zero. The index respected resistance at 6500 and is retracing to test short-term support at 6250. Respect is more likely and would suggest another test of 6500. Reversal below 6000 is unlikely, but would confirm the primary down-trend.
Asia
The Shanghai Composite Index rallied off government-enforced support at 3000. But the rally is likely to be short-lived and recovery above 3500 unlikely.
Hong Kong's Hang Seng Index is retracing to test support at 22500 after a similar bear rally. Respect of 22500 would indicate another test of 24000, but breach of support is more likely and would warn of another test of primary support at 21000.
Japan's Nikkei 225 encountered resistance at 18500. Gradual decline on 13-week Twiggs Money Flow suggests a secondary correction, with long-term buying pressure continuing. Recovery above 19000 would indicate another test of 21000.
* Target calculation: 19000 + ( 19000 - 17000 ) = 21000
India's Sensex is retracing to test support at 26500. The 13-week Twiggs Money Flow trough above zero, however, indicates strong buying pressure and respect of support at 26500 would indicate continuation of the rally. Reversal below 26000 is unlikely, but would confirm a primary down-trend.
Australia
The ASX 200 retreated from resistance at 5250/5300. Rising 13-week Twiggs Money Flow, however, indicates medium-term buying pressure. A higher trough above 5000 would strengthen the signal. Breakout above 5300 would signal continuation of the bear rally to test the descending trendline. The bear market continues despite recent support and breach of 5000 would confirm a primary down-trend.
* Target calculation: 5000 - ( 5400 - 5000 ) = 4600
Being powerful is like being a lady. If you have to tell people you are, you aren't.
~ Margaret Thatcher
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