Investing in an artificial world

By Colin Twiggs
August 20, 2016 8:30 p.m. EDT (10:30 a.m. AEST)

I am not a licensed investment adviser. Everything contained in this web site, related newsletters, training videos and training courses (collectively referred to as the "Material") has been written for the purpose of teaching analysis, trading and investment techniques. The Material neither purports to be, nor is it intended to be, advice to trade or to invest in any financial instrument, or class of financial instruments, or to use any particular methods of trading or investing. Advice in the Material is provided for the general information of readers, viewers and course attendees (collectively referred to as "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 in the Material without properly considering its applicability to their financial circumstances. If not properly qualified to do this for themselves, Readers should seek professional advice. Investing and trading involves risk of loss. Past results are not necessarily indicative of future results. The decision to invest or trade is for the Reader alone. I expressly disclaim all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the Material.


Dow Jones Global Index is in phase 2 of a primary up-trend. Target for the current advance is 340*. Momentum holding above zero indicates trend strength.

DJ Global Index

* Target calculation: 316 + ( 316 - 292 ) = 340

North America

The S&P 500 continues to layer in a narrow range. The market shows little enthusiasm but there is no sign of selling pressure. Periods of consolidation normally resolve in the direction of the prevailing trend but retreat below 2150 would warn of another retracement to test medium-term support at 2100 to 2130.

S&P 500 Index

* Target calculation: 2100 + ( 2100 - 1800 ) = 2400

The Dow Jones Industrial Average is also consolidating above support at 18300. Follow-through above 18600 would indicate an advance to the medium-term target of 19000*.

Dow Jones Industrial Average

* Target medium-term: 18500 + ( 18500 - 18000 ) = 19000; Long-term: 18000 + ( 18000 - 16000 ) = 20000

The Financial Stress Index from the St Louis Fed continues to flag low levels of stress in financial markets. Values above zero indicate elevated stress.

St Louis Fed Financial Stress Index

Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index� [STLFSI], retrieved from FRED, Federal Reserve Bank of St. Louis

But we are living in a highly artificial world, with record low interest rates driving a scramble for yield.

10-Year Yields

And the scramble for yield is distorting asset prices. Bonds are the most obvious example but many listed property vehicles are trading at substantial premiums to underlying net asset value. And stocks are not immune, with the Price-Earnings ratio for Defensives making new highs.

So although financial stress is low, we need to be careful not to pay too high a price.


Germany's DAX is retracing to test new support at 10500. Respect would confirm the primary up-trend.


* Target calculation: 10500 + ( 10500 - 9500 ) = 11500

The Footsie is slowing as it approaches heavy resistance at 7000/7100*. Correction towards 6500 would establish a new base for further advances.

FTSE 100

* Target calculation: 6500 + ( 6500 - 5900 ) = 7100


The Shanghai Composite Index is testing resistance at 3100. Breakout would signal a primary up-trend. Recovery of Momentum above zero is a bullish sign.

Shanghai Composite Index


The ASX 200 is consolidating in a narrow range between 5500 and 5600. Reversal below 5500 would warn of another test of the lower trend channel.

ASX 200

* Target calculation: 5400 + ( 5400 - 5100 ) = 5700

There is still a question over Australian banks' capital adequacy and exposure to housing. But the ASX 300 (not "ASX 30") Banks Index continues to build a base between 7200 and 8000. Breakout would signal a primary up-trend.

ASX 300 Banks Index

I should therefore prefer to restrict my guidelines to the following:

  • Don't believe that military interventions, no matter how morally justified, can succeed without clear military goals
  • Don't fall into the trap of imagining that the West can remake societies
  • Don't take public opinion for granted — but don't either underrate the degree to which good people will endure sacrifices for a worthwhile cause
  • Don't allow tyrants and aggressors to get away with it
  • And when you fight — fight to win.

~ Margaret Thatcher, Statecraft: Strategies for a Changing World (2002)