Research & Investment | The gathering storm

By Colin Twiggs
December 10th, 2015 6:00 p.m. AEDT (2:00 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.

Last week I touched on the bearish divergence on the Nasdaq 100, warning of a reversal. This week we look at bearish signs on the Dow Jones Global Index, transport bellwether Fedex and a number of major indices outside the US and Japan.

First, the Dow Jones Global Index. After a failed breakout in May, the index broke through primary support at 300, warning of a down-trend. The subsequent rally allayed fears but ran into resistance at 320. Reversal below 300 would strengthen the bear signal, while a 13-week Twiggs Momentum peak below zero (and or breach of 290) would confirm the (primary) down-trend.

DJ Global Index

* Target calculation: 300 – ( 335 – 300 ) = 265

North America

The S&P 500 is headed for a test of medium-term support at 2000. Peaks on 13-week Twiggs Money Flow are healthy, but reversal (of the index) below support would put us back in bear territory. Breach of primary support at 1870 is unlikely but would confirm a primary down-trend.

S&P 500 Index

* Target calculation: 2130 + ( 2130 – 1870 ) = 2390

CBOE Volatility Index (VIX) below 20 indicates market risk is subdued, but some macro indicators remain elevated. Breakout above 20 would warn that risk is again climbing.

S&P 500 VIX

Transport bellwether Fedex is falling. Breach of $140 would signal a decline to $115*. Reversal of 13-week Twiggs Money Flow below zero warns of strong selling pressure.

Fedex

* Target calculation: 140 – ( 165 – 140 ) = 115

Canada’s TSX 60 broke support at 765, confirming a primary down-trend. 13-Week Twiggs Momentum peaks below zero strengthen the bear signal. Target for the decline is 700*.

TSX 60 Index

* Target calculation: 800 – ( 900 – 800 ) = 700

Europe

Germany’s DAX retreated below 11000, warning of a correction to test 10000. Declining 13-week Twiggs Money Flow peaks warn of selling pressure, but breach of primary support at 9300 remains unlikely.

DAX

The Footsie broke medium-term support at 6250, while 13-week Twiggs Money Flow below zero warns of strong selling pressure. Breach of 6000 is now likely and would signal a primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index is again testing support at 3500. Reversal below 3300 would confirm another assault on primary support at 3000. 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. The PBOC has massive foreign currency reserves which act as a buffer, but these have already been depleted by half a trillion Dollars.

Dow Jones Shanghai Index

Japan’s Nikkei 225 is retracing for another test of medium-term support at 19000. Respect would confirm an advance to 21000. Breach of 19000 is less likely, but Japan is not impervious to an emerging markets crisis. Collapse of Asian markets would damage exports.

Nikkei 225 Index

* Target calculation: 19000 + ( 19000 – 17000 ) = 21000

India’s Sensex is testing 25000. Decline of 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of support is likely and would confirm a primary down-trend with an initial target of 23000*.

SENSEX

* Target calculation: 26500 – ( 30000 – 26500 ) = 23000

Australia

The ASX 200 is testing primary support at 5000. Reversal of 13-week Twiggs Money Flow below zero indicates strong selling pressure. Breach is likely and would signal a primary down-trend.

ASX 200

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

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