Low volatility and indecision

By Colin Twiggs
August 26, 2016 11:30 p.m. EDT (1:30 p.m. AEST)

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Global

Dow Jones Global Index is again retracing to test the new support level at 316. The index is in a primary up-trend, with Momentum troughs above zero flagging trend strength.

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

North America

Bob Doll from Nuveen sums up the current market well:

It will be difficult, however, for equity prices to advance without additional support. Equity indices have again hit new records, but we believe fundamental changes may be necessary for prices to continue advancing strongly. Specifically, earnings would have to improve further and/or investor flows would have to turn notably toward stocks. Neither is out of the question, but aren't likely.

The S&P 500 consolidating in a narrow range signals indecision. There is little enthusiasm but no sign of selling pressure. Narrow rectangles normally resolve in the direction of the prevailing trend but retreat below 2150 would warn of another test of medium-term support at 2100 to 2130.

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

The Dow Jones Industrial Average is also consolidating in a narrow range. Follow-through above 18600 would normally be considered likely but bearish divergence on Twiggs Money Flow warns of selling pressure. Breach of support at 18300 would test 18000. Only breach of 18000 would warn of a test of primary support at 17000.

* Target medium-term: 18500 + ( 18500 - 18000 ) = 19000

Declining Volatility suggests low risk of a sell-off. This is a new indicator that we will introduce with the next update. I find it handy for signaling market risk. Rising troughs tend to precede a market sell-off (as in early 2016), while falling peaks flag a return to business as usual. Not perfect, but a useful tool.

Canada's TSX 60 broke resistance at 850 and is advancing toward 900. I used linear regression to draw the latest trend channel as it seems a far better fit than the conventional method. Rising Momentum troughs above zero indicate trend strength.

Australia

The ASX 200 is consolidating in a narrow range above 5500. Bearish divergence on Twiggs Money Flow warns of selling pressure. Breach of 5500 would warn of another test of the lower trend channel.

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

Australian banks continue to weigh on the index. The ASX 300 Banks Index is building a base between 7200 and 8000. Breakout would signal a primary up-trend, but declining Money Flow peaks warn of selling pressure. Expect another test of primary support at 7200.

If you choose not to decide, you still have made a choice.

~ Neil Peart: Freewill