Nasdaq bearish divergence
By Colin Twiggs
December 3rd, 2015 7:30 p.m. AEDT (3:30 a.m. EST)
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 November 2015
The S&P 500 Prime Momentum strategy returned +7.12%* for the 12 months ended 30th November 2015, compared to +2.75% for the S&P 500 Total Return Index.
Macroeconomic and volatility filters continue to indicate elevated market risk and we maintain a strong cash position (47.4% of portfolio value), with reduced exposure to equities.
The ASX 200 Prime Momentum strategy is trailing the benchmark index. Performance for the 12 months ended 30th November 2015 is -4.07%*, compared to +1.90% for ASX200 Accumulation Index. Concentrated portfolios are more volatile, but they also tend to perform better in the long-term — which is why we recommend a minimum investment horizon of 5 years.
Macroeconomic and volatility filters again indicate elevated market risk and we maintain cash holdings of 45.9%, with reduced exposure to equities.
* Results are unaudited and subject to revision.
North America
The S&P 500 found resistance at 2100, indicating a continued lack of enthusiasm. Declining 13-week Twiggs Money Flow flags medium-term selling pressure. Reversal below 2000 would warn of another test of primary support at 1870. Upward breakout now appears less likely, but would signal a fresh advance to 2400*.
* Target calculation: 2130 + ( 2130 - 1870 ) = 2390
Declining CBOE Volatility Index (VIX) below 20 indicates market risk is returning to normal. Some macro indicators remain elevated, however, which is why we maintain reduced exposure.
The Nasdaq 100 is testing the previous (2000) high of 4800. Breakout would be a bullish sign for the broader market but bearish divergence on 13-week Twiggs Money Flow continues to warn of stubborn resistance.
Canada's TSX 60 is struggling to break resistance at 800. 13-Week Twiggs Momentum peaks below zero continue to warn of a strong primary down-trend. Recovery above 825 is unlikely, while failure of support at 765 would confirm another decline.
* Target calculation: 775 - ( 825 - 775 ) = 725
Europe
Germany's DAX is retracing to test its new support level at 11000. Respect is likely and would confirm another test of 12400. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 11000 is unlikely, but would warn of another test of 10000.
The Footsie is strengthening, with rising 13-week Twiggs Momentum. Breakout above 6500 would indicate another test of 7000/7100. Reversal below 6000 is unlikely but would signal a primary down-trend.
Asia
The Shanghai Composite Index recovered above support at 3500. I remain wary of China because of the high Debt to GDP ratio, the need to wean itself off investment stimulus, and impending rate rises in the US which could encourage further capital outflows.
Chart/Quote (CS): China's heavy dependence on investment - pic.twitter.com/op5a3XOtkZ
— SoberLook.com (@SoberLook) December 3, 2015Japan's Nikkei 225 is testing short-term resistance at 20000. This is unlikely to impede an advance to 21000. Rising 13-week Twiggs Money Flow indicates buying pressure.
* Target calculation: 19000 + ( 19000 - 17000 ) = 21000
India's Sensex is retracing to test the former band of primary support at 26000/26500. Respect would confirm a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero would strengthen the signal. Follow-through below 25000 would offer a target of 22500*. Recovery above the upper trend channel at 27000 is unlikely, but would suggest a rally to 30000.
* Target calculation: 25000 - ( 27500 - 25000 ) = 22500
Australia
The ASX 200 encountered short-term resistance at 5300. Declining 13-week Twiggs Money Flow indicates (medium-term) selling pressure; reversal below zero would strengthen the signal. Breach of 5150 would warn of another test of primary support at 5000. Failure of support would signal a primary down-trend.
* Target calculation: 5000 - ( 6000 - 5000 ) = 4000
Be great in act, as you have been in thought;
Let not the world see fear and sad distrust
Govern the motion of a kingly eye:
Be stirring as the time; be fire with fire;
Threaten the threatener and outface the brow
Of bragging horror: so shall inferior eyes,
That borrow their behaviors from the great,
Grow great by your example and put on
The dauntless spirit of resolution.
....What, shall they seek the lion in his den,
And fright him there? and make him tremble there?
O, let it not be said: forage, and run
To meet displeasure farther from the doors,
And grapple with him ere he comes so nigh.
~ William Shakespeare: King John, Act 5, Scene 1
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