Around the markets: Hong Kong & India bullish

Canada’s TSX 60 continues to test resistance at the former primary support level of 900. Bearish divergence on Twiggs Money Flow warns of strong selling pressure. Decline below 880 would confirm a primary down-trend, with an initial target of 865*.

* Target calculation: 900 – ( 935 – 900 ) = 865

The Footsie recovered above 7400 but bearish divergence on Twiggs Money Flow warns of long-term selling pressure. Another test of primary support at 7100 remains likely.

European stocks are taking a beating, with the Dow Jones Euro Stoxx 50 Index testing support at 3400. Sharp decline on Twiggs Money Flow warns of selling pressure. Breach of 3400 would warn of a test of 3200.

* Target calculation: 3650 – ( 3650 – 3450 ) = 3850

India’s Sensex remains in a bull market.

* Target calculation: 29000 + ( 29000 – 26000 ) = 32000

As does Hong Kong’s Hang Seng Index.

* Target calculation: 24000 – ( 24000 – 21500 ) = 26500

While China’s Shanghai Composite index ranges between 3000 and 3300. Government interference remains a concern.

Round the world: India & Hong Kong advance, Canada falters

Canada’s TSX 60 retraced to test resistance at the former primary support level of 900. Respect is likely and would signal a bear market. Decline of Twiggs Money Flow/Trend Index below zero would strengthen the bear signal. Medium-term target for the decline is 865*.

* Target calculation: 900 – ( 935 – 900 ) = 865

The Footsie is losing momentum, with penetration of successive trendlines and declining Twiggs Trend Index. A test of primary support at 7100 is likely.

Dow Jones Euro Stoxx 50 Index, representing the 50 largest stocks in the Euro Zone, found support above 3400. Penetration of the declining trendline would indicate the correction is over and suggest the start of another advance — confirmed if the index breaks its recent (May 2017) high.

* Target calculation: 3650 – ( 3650 – 3450 ) = 3850

It’s full steam ahead for India’s Sensex. Trend Index troughs above zero indicate strong buying pressure. Expect some profit-taking at the target of 32000* but any correction is likely to be shallow as the bull market gathers momentum.

* Target calculation: 29000 + ( 29000 – 26000 ) = 32000

Hong Kong’s Hang Seng Index has also reached its target of 26500. Again Trend Index troughs above zero indicate solid buying pressure.

* Target calculation: 24000 – ( 24000 – 21500 ) = 26500

China’s Shanghai Composite index is also rallying but I remain wary of government intervention.

China: Stay clear

“Never trade against the central bank” is a golden rule of trading. Rule #2 should be: “When the central bank behaves erratically, stay clear.” The PBOC announced a crackdown on wealth management products in May but alarm at the rapid contraction elicited a quick retraction.

The Shanghai Composite Index broke support at 3050/3100 signaling a primary decline. But the PBOCs sudden reversal spurred a recovery, with the index now likely to test resistance at 3300. Rising Twiggs Money Flow indicates buying pressure. Reversal below 3050 is unlikely but would confirm a primary down-trend.

Shanghai intervention

The Shanghai Composite Index recovered above primary support at 3100, after the state moved quickly to ease contractionary pressures from the recent crackdown on wealth management products. Rising Twiggs Money Flow signals buying pressure but the situation is artificial. Normally breach of primary support would elicit strong selling.

* Target medium-term: May 2016 low of 2800

Beijing eases pressure

China’s PBOC eased up on its crackdown on wealth management products (WMPs) and related bank lending. The resulting fall-off in new credit and a spike in interbank lending rates threatened to precipitate a sharp contraction.

Copper rallied off long-term support at 5400. The reaction is secondary and breach of 5400 remains likely, signaling a primary down-trend.

Iron ore is consolidating in a narrow bearish pattern above support at 60. Breach seems likely and would signal another decline, with a target of 50*.

* Target: 60 – ( 70 – 60 ) = 50

Shanghai’s Composite Index rallied to test its new resistance level at 3100, after breach signaled a primary down-trend. Respect would confirm the decline, with a medium-term target of 2800*, but government intervention may bolster support. Recovery above 3100 would mean all bets are off for the present.

* Target medium-term: May 2016 low of 2800

Shanghai breaches support

Copper is testing long-term support at 5400, suggesting weak demand from China. Breach would signal a primary down-trend.

The Yuan has enjoyed a respite, consolidating in a narrow line for several weeks. But this is likely to prove temporary, with further advances of the Dollar against the Yuan eroding PBOC foreign exchange reserves.

Shanghai’s Composite Index broke support at 3100, signaling a primary down-trend, but the long tail indicates buying support. Recovery above 3100 would suggest a false signal (or government intervention) while respect of resistance would confirm the down-trend.

* Target medium-term: May 2016 low of 2800

Shanghai warning

Shanghai’s Composite Index is again testing support at 3100. Twiggs Money Flow reversal below zero warns of selling pressure. Breach of 3100 would signal a primary down-trend.

* Target medium-term: May 2016 low of 2800

China tests support while India strengthens

Shanghai’s Composite Index is testing support at 3100. Twiggs Money Flow recovered above zero but buying pressure remains weak. Breach of 3100 would warn of a primary down-trend.

* Target medium-term: May 2016 low of 2800

Hong Kong is faring better, with the Hang Seng index recovering above 24000 to signal a fresh advance.

India’s Sensex is testing major resistance at 30000. Rising Twiggs Money Flow indicates medium-term buying pressure. Breakout is likely and would offer a target of 32000*.

* Target medium-term: 29000 + ( 29000 – 26000 ) = 32000

China dips while India strengthens

Shanghai’s Composite Index is experiencing selling pressure, with Twiggs Money Flow crossing below zero for the first time since 2014. Reversal below 3100 would warn of a primary down-trend.

* Target medium-term: May 2016 low of 2800

India’s Sensex is consolidating in a bullish narrow band below major resistance at 30000. Rising Twiggs Money Flow indicates medium-term buying pressure. Breakout is likely and would offer a target of 32000*.

* Target medium-term: 29000 + ( 29000 – 26000 ) = 32000

China: Inflation on the rise

China’s Shanghai Composite Index is approaching resistance at 3300 after respecting its new support level at 3100. Twiggs Money Flow troughs above zero indicate long-term buying pressure. Breakout would provide further confirmation of the primary up-trend.

* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400

The rising market is primarily a result of central bank stimulus so investors need to consider the result if this is withdrawn. Rising producer prices warn that underlying inflation is growing. If this continues the PBOC will be forced to retreat.

Hong Kong’s Hang Seng Index is also testing resistance, at 24000. A Twiggs Money Flow trough that respects zero would signal long-term buying pressure but that looks uncertain at present.

China hits turbulence

Shanghai Composite Index is retracing from its recent high at 3300. A test of support at 3100 is likely. Rising Twiggs Money Flow indicates long-term buying pressure but this may be distorted by state intervention in the stock market earlier this year.

* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400

Hong Kong’s Hang Seng Index found support at 22000 but falling Money Flow warns of strong selling pressure. Breach of 22000 would signal a primary down-trend with an initial target of 20000.

The best summary I have seen of China’s dilemma is from David Llewellyn-Smith at Macrobusiness:

…China’s choices are limited here by the “impossible trinity”, that a country [pegged to the Dollar] can only choose two out of the following three:

• control of a fixed and stable exchange rate
• independent monetary policy
• free and open international capital flows

China has been trying to run this gauntlet by sustaining an overly high growth rate via loose monetary policy and recently liberalised capital markets plus exchange rate. But it can’t have stability in all three and so is in full reverse on the last two to prevent a currency rout and/or monetary tightening.

Rising interest rates in the US are likely to bedevil China’s monetary policy. A falling Yuan would encourage capital flight. Capital flight would damage the Yuan, encouraging further outflows. Support of the Yuan would deplete foreign reserves and cause monetary tightening. Loose monetary policy would encourage speculative bubbles which could damage the banking system. A falling Yuan and loose monetary policy would fuel inflation. Inflation would further weaken the Yuan and encourage capital flight. Restriction of capital outflows would end capital inflows.

I am sure that there are some very smart people working on the problem. But they are probably the same smart people who created the problem in the first place.

Japan & China rally

Japan’s Nikkei 225 Index broke resistance at 17500 while rising Money Flow indicates buying pressure. Target for the rally is the November 2015 high of 20000*.

* Target medium-term: 17500 + ( 17500 – 15000 ) = 20000

Shanghai Composite Index followed through after a brief consolidation at 3200, offering a target of 3400*. Expect retracement to test the new support level at 3100 but rising Money Flow suggests respect is likely.

* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400

Shanghai rally runs out of steam

Shanghai Composite Index ran into resistance at 3200 after its recent breakout. Expect retracement to test the new support level at 3100. Respect would confirm the target of 3400* for the advance.

* Target medium-term: 3100 + ( 3100 – 2800 ) = 3400

China

Hong Kong’s Hang Seng Index is testing support at 23000. Breach would warn of a correction to test the long-term rising trendline. Declining Twiggs Money Flow indicates medium-term selling pressure. Breakout above 24000 is unlikely but would signal a fresh advance.

The Shanghai Composite Index is again testing resistance at 3100. Breakout is likely and would signal a fresh advance, offering a target of 3400.

China breakout is likely

Hong Kong’s Hang Seng Index is consolidating between 23000 and 24000. Decline of Twiggs Money Flow has slowed and a trough above zero would indicate long-term buying pressure. Breakout above 24000 would signal a fresh advance. Breach of support at 23000 is less likely but would warn of a correction to test the long-term rising trendline.

The Shanghai Composite Index made a flat saucer-shaped correction before again testing resistance at 3100. Breakout is now likely and would signal a fresh advance.

China: Hang Seng retreats

Steep decline on Twiggs Money Flow warns of strong selling pressure on Hong Kong’s Hang Seng Index. Breach of support at 23000 would warn of a correction to test the long-term rising trendline.

The Shanghai Composite Index continues to consolidate between 2800 and 3100.

Asia pulls back

China’s Shanghai Composite Index retreated below resistance at 3100. Prospects of a primary up-trend have dimmed and further consolidation between 2800 and 3100 is likely.

Japan’s Nikkei 225 Index is pretty directionless, retreating from resistance at 17000. Breach of 16000 would warn of another test of primary support at 15000. But a broad base between 15000 and 17000 is likely.

India’s BSE Sensex is the most promising, consolidating in a bullish narrow range around 28000. Upward breakout would signal a further advance towards the 2015 high of 30000. Bearish divergence on Twiggs Money Flow warns of long-term selling pressure, however, and downward breakout would warn of a correction to 25000 or 26000.

Asia: Shanghai weakens

The Shanghai Composite Index broke medium-term support at 2900, warning of another test of primary support at 2700. Reversal of Money Flow below zero would warn of a decline to 2400*.

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

Japan’s Nikkei 225 Index is edging higher but trend strength is weak. Breakout above resistance at 17000 was followed by a retreat to 16000. Support is weak and breach of 16000 would signal another test of primary support at 15000.

* Target calculation: 17000 – ( 20000 – 17500 ) = 15000

India’s Sensex is more bullish, testing its upper trend channel at 26000. Short retracement is a bullish sign and breakout above 26000 would signal that the down-trend is ending. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal.

* Target calculation: 23000 – ( 25000 – 23000 ) = 21000