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Trading Diary
February 28, 2004

These extracts from my daily trading diary are for educational purposes and should not be interpreted as investment advice. Full terms and conditions can be found at Terms of Use.




USA
The Dow Industrial Average made a false break above support at 10600 before closing down at 10583.
Consolidation below the the level of a recent high is a bearish sign. 
The intermediate trend is uncertain. A fall below support at 10400 would signal a re-test of the 10000 level.




The primary trend is up. Expect strong resistance at 11300 to 11400.
Twiggs Money Flow gives a weak distribution signal, having broken below its signal line.




The Nasdaq Composite closed down at 2029. Higher volume and a weak close signal increased selling pressure, favoring a reversal. 
The intermediate trend is down. Support is at 2000.
The primary trend is up. A fall below 1750 would be bearish.


 



The S&P 500 closed unchanged at 1145. The weak close and higher volume signal selling pressure, favoring a reversal. 
The intermediate trend is uncertain. A rise above 1155 would be bullish. A fall below support at 1120 would be bearish.
The primary trend is up. Expect strong support at 1000.




Treasury yields
The yield on 10-year treasury notes closed at 3.984%, below support at 4.0%.
The intermediate trend is down.
The primary trend is up. A bearish descending triangle has formed on the weekly chart; a close below the low of 3.93% would signal reversal.




The yield differential (10-year T-notes compared to 13-week T-bills) is healthy at above 3.0%. See Interest Rates for further explanation.




Gold
New York: Spot gold tested support at 390 before closing at $396.10.
The intermediate trend is down.
The primary trend is up. A fall below $370 would signal reversal.



ASX Australia
The All Ordinaries rallied to 3372 on strong volume, making a bullish penetration above the previous high.




The intermediate trend is up and we are likely to see a test of resistance at 3425 to 3450 (the highs from 2001 and 2002). A fall below support at 3270 would be bearish.
The primary trend is up. Support is at 3160.


Australian sectors
We have had to curtail our coverage of sectors to ensure compliance with Australian Financial Services Regulations. The new weekly format will include coverage of stock screens, indicators, chart patterns, support and resistance and other items of general interest to subscribers.







Stock Screening - Trend Starts
A useful screen for identifying strong trends is the MACD
. MACD is a fairly short-term oscillator, plotting the difference between the 26- and 12-day exponential moving averages.
  • MACD (26,12,9): select bull signal within the last 3 days.
    If you are screening for stocks commencing a down-trend, select bear signal instead.
Crossovers will occur near the start of a trend but there are many false signals where MACD whipsaws around its signal line in a ranging market. Most of these false signals occur when MACD is, itself, whipsawing above and below the zero line. We can minimize these by selecting only bullish MACD crossovers that occur above the zero line, or bearish crossovers below.
  • MACD (26,12,9) above/below Zero: select bull signal within the last 9999 days.
    This will return all stocks where MACD is above zero.
    If you are screening for stocks commencing a down-trend, select bear signal instead.
  • Do a sort on the Stock Screen Return: click on the MACD (26,12,9,0) header to arrange stocks in terms of the number of days above zero. 
Start with the stocks that have the highest number of days (within reason) above zero and work your way down the list. Charts where MACD has been above zero for a really long time (e.g. SFE - 248 days and CTX - 236) may be mature trends that are close to reversal.

GUD Holdings is one of the better examples of what may turn up. MACD crossovers occur at [1] [2] and [3], while the indicator is above zero. The first two alert us to excellent setups - where price consolidates in a narrow range above a former resistance level, at [a] and at [2], before breaking into a strong up-trend.




Before you rush out and buy every stock where there is an MACD crossover above zero, Harvey Norman Holdings [HVN] is an example of how the signals may mis-fire: [1] to [5] are poor signals before [6] offers a reasonable setup. Most of the poor signals occurred shortly after MACD had crossed to above zero. More reliable signals are likely to be found where MACD has been above zero for at least a month.




Reversal patterns, like the narrow double bottom at [a] and [b], may provide earlier setups. So do not rely exclusively on MACD screening techniques.



 
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The weekly Trading Diary offers fundamental analysis of the
economy and technical analysis of major market indices,
gold, crude oil and forex.
The monthly What's New newsletter covers new articles
on Trading and the Economy, as well as new software updates.



About the Trading Diary has been expanded to offer further assistance to readers, including directions on how to search the archives.

Colin Twiggs


The conduct of successful business merely consists in doing things in a very simple way,
doing them regularly and never neglecting to do them.

 ~ William Hesketh Lever



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