S&P 500 rallies despite credit losses and falling retail sales
By Colin Twiggs
April 14, 2016 6:00 p.m. AEST (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.
Breach of the descending trendline on the weekly chart of June Light Crude futures (CLM2016) suggests that a bottom is forming. A second test of primary support that results in a higher trough would be a bullish sign. The market is buoyant on expectations of a production freeze being agreed between the Russians and Saudis, but there are a number of other producers such as Iran who may not play ball. Breach of $32 is unlikely but would offer a target of $22/barrel*. Further consolidation between $32 and $42 remains likely.
Global
Dow Jones Global Index also penetrated its descending trendline, suggesting that a bottom is forming. Breach of 300 remains likely and would indicate another test of primary support at 270. A higher trough would be a bullish sign, suggesting reversal to an up-trend, but would only be confirmed by follow-through above the present high. 13-Week Twiggs Momentum recovery above zero would be mildly bullish but further low peaks would indicate that bears still dominate.
* Target calculation: 270 - ( 300 - 270 ) = 240
North America
Retail sales (excluding motor vehicles and parts) followed light vehicle sales lower in March with a year-on-year change dipping below 2 percent.
The market is headed for a test of resistance at 2100 after "upbeat" results from J P Morgan (JPM). 13-Week Momentum is rising and breakout, while unlikely, is possible. Earnings releases for a number of financial heavyweights are due Thursday which should give a good idea as to how the quarter is likely to unfold. I remain wary of this rally but will heed Jesse Livermore's advice: never argue with the tape. Reversal below 2000 would warn of another test of primary support at 1800.
A CBOE Volatility Index (VIX) at a low 14 indicates that (short-term) market risk has eased. But long-term measures continue to warn of elevated risk.
Canada's TSX 60 is testing resistance at 800. Penetration of the descending trendline suggests that a bottom is forming. Respect of 800 would warn of another test of primary support. Rising 13-week Twiggs Momentum is encouraging but a low peak above zero would indicate that bears still dominate.
Europe
Germany's DAX continues to test resistance at 10000. Breakout would indicate a test of the descending trendline. Declining 13-week Twiggs Momentum below zero warns of continuation of the primary down-trend. Retreat below 9500 would signal another decline.
* Target calculation: 9500 - ( 11000 - 9500 ) = 8000
The Footsie is more bullish, having penetrated its descending trendline and is expected to test 6500. 13-Week Twiggs Momentum crossed above zero but a low peak would warn that bears still dominate. Reversal below 6000 would warn of another test of primary support at 5500. A bottom is forming, so breach of primary support is unlikely. Completion of a higher trough would signal a primary up-trend.
* Target calculation: 6000 - ( 6500 - 6000 ) = 5500
Asia
The Shanghai Composite Index is recovered above 3000. A more dovish stance from the Fed eased pressure on the Yuan and increased liquidity but there are still many rivers to cross (and mountains to climb) before there is a solid foundation for an economic recovery. Declining 13-week Twiggs Momentum below zero continues to indicate a strong primary down-trend.
* Target calculation: 3000 - ( 3600 - 3000 ) = 2400
If we wanted to create an index of consumer sentiment in China, the almost 38,000 approvals from Australia's Foreign Investment Review Board (FIRB) in 2014-2015, to buy real estate in Australia, may be a good place to start.
Japan's Nikkei 225 Index is in a strong down-trend. Respect of resistance at 17000 is likely and would warn of another test of primary support at 15000. Declining 13-Week Twiggs Momentum below zero confirms bearish sentiment.
* Target calculation: 17000 - ( 20000 - 17500 ) = 15000
India's Sensex broke resistance at 25000 and 13-week Twiggs Momentum is recovering. Penetration of the descending trendline would suggest that a bottom is forming. Respect, indicated by reversal below 25000, would warn of another test of 22500*/23000.
* Target calculation: 25000 - ( 27500 - 25000 ) = 22500
Australia
The ASX 200 recovered above 5000. Penetration of the descending trendline would suggest that a bottom is forming, though I must admit I would be skeptical. Respect of resistance at 5300 is likely and would warn of another test of primary support at 4700. A low peak on 13-week Twiggs Momentum would warn that bears still dominate. Reversal below 5000 would warn of another (primary) decline.
* Target calculation: 4700 - ( 5200 - 4700 ) = 4200
Banks are the biggest single component of major ASX indices. The ASX 300 Banks Index remains weak and reversal below 72.00 would warn of another decline. Peaks below zero on 13-week Twiggs Momentum flag a primary down-trend.
What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.
~ Adam Smith: The Wealth of Nations (1776)
Disclaimer
Porter Private Clients Pty Ltd, trading as Research & Investment ("R&I"), is a Corporate Authorized Representative (AR Number 384 397) of Andika Pty Ltd which holds an Australian Financial Services Licence (AFSL 297069).
The information on this web site and in the newsletters is general in nature and does not consider your personal circumstances. Please contact your professional financial adviser for advice tailored to your needs.
R&I has made every effort to ensure the reliability of the views and recommendations expressed in the reports published on its websites and newsletters. Our research is based upon information known to us or which was obtained from sources which we believe to be reliable and accurate.
No guarantee as to the capital value of investments, nor future returns are made by R&I. Neither R&I nor its employees make any representation, warranty or guarantee that the information provided is complete, accurate, current or reliable.
You are under no obligation to use these services and should always compare financial services/products to find one which best meets your personal objectives, financial situation or needs.
To the extent permitted by law, R&I and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information. If the law prohibits the exclusion of such liability, such liability shall be limited, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.
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.
To the extent permitted by law, R&I and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information offered by R&I whether or not caused by any negligent act or omission.