Research & Investment | Cautious optimism

Cautious optimism

By Colin Twiggs
June 9, 2016 4:30 p.m. AEST (2:30 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.

Markets reflect cautious optimism. Prices are recovering but low volumes suggest a lack of enthusiasm.

Breakout of the S&P 500 above 2100 signals a fresh advance. Follow-through above 2130 would confirm. Expect some resistance at 2130, but narrow consolidation below this level would be a bullish sign. Retreat below 2100 is unlikely but would warn of another correction. Rising 13-week Money Flow, but below the previous peak, indicates weak medium-term buying pressure.

S&P 500 Index

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

Dow Jones Industrial Average is testing resistance at 18000. Breakout is likely, following the path of the S&P 500, and follow-through above 18300 would confirm another advance. 13-Week Money Flow is slowly rising, suggesting weak medium-term buying pressure.

Dow Jones Industrial Average

A CBOE Volatility Index (VIX) at 14 continues to indicate low market risk. Long-term measures have also eased.

S&P 500 VIX

Canada’s TSX 60 is likely to encounter resistance around 850 (820 + 820 – 790). Retracement that respects support at 820 would indicate a healthy up-trend. Rising 13-week Twiggs Momentum, above zero, signals a primary up-trend.

TSX 60 Index

Europe

Germany’s DAX is headed for a test of resistance at 10500. 13-Week Money Flow troughs above zero indicate buying pressure. Penetration of 10500 and the descending trendline would suggest that a bottom is forming. Reversal below the trend channel would indicate another correction, but a higher trough would be likely to confirm a primary up-trend.

DAX

The Footsie is headed for a test of 6400/6500. Completion of a higher trough would confirm a primary up-trend. Again, Money Flow troughs above zero signal buying pressure.

FTSE 100

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

Asia

The Shanghai Composite Index formed two 13-week Money Flow troughs above zero, signaling strong support at 2700. But the index is likely to encounter stubborn resistance at 3100, resulting in a wide bottom ranging between 2700 and 3100.

Shanghai Composite Index

* Target calculation: 3000 – ( 3600 – 3000 ) = 2400

Japan’s Nikkei 225 Index is rising in a broad trend channel. Money Flow remains above zero but the broad channel suggests weakness. Expect stubborn resistance at 18000. Breach of the channel would warn of another decline.

Nikkei 225 Index

* Target calculation: 15000 – ( 18000 – 15000 ) = 12000

India’s Sensex is likely to encounter resistance at 27000 after a bullish breakout above 26000. Bearish divergence on 13-week Money Flow warns of a correction despite rising troughs. A correction that respects support at 25000 (or higher), however, would confirm the primary up-trend.

SENSEX

Australia

The ASX 200 is testing resistance at 5400. Narrow consolidation would be a bullish sign but bearish divergence on 13-week Money Flow warns of medium-term selling pressure. We are entering the seasonal sell-off before financial year end. A correction that respects the lower trend channel at 5200 is likely in the current bullish climate and would suggest another advance.

ASX 200

The Banks Index penetrated its descending trendline at 7800, suggesting that a bottom is forming and support at 7200 is likely to hold. Recovery above 8200 would complete a double bottom reversal but reversal below 7800 warns that there may be another correction first.

ASX 300 Banks

The Metals & Mining Index is testing its long-term descending trendline on a monthly chart. Bullish divergence on 13-week Money Flow suggests long-term buying pressure. While I am bearish on China and iron ore prices, it would be difficult to argue against a breakout above 2600 or a Money Flow trough above zero.

ASX 300 Metals & Mining

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