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October 23, 2004
The Dow Industrial Average exhausted support at 9800, closing down strongly on average volume. If the index fails to consolidate or cross back above 9800 in the next few days, this will be a strong bear signal. Each of the previous down-swings has reversed shortly after making a new low. Failure to do so would signal increased commitment from sellers.
The primary trend remains downward. The pull-back above the first line of resistance (at 1900) indicates a weak trend.
Twiggs Money Flow continues to whipsaw around the signal line, reflecting indecision.
However, Twiggs Money Flow is still bearish, remaining below its signal line.
The yield on 10-year treasury notes is again testing support at 4.00%, closing just below the key level. The market appears to be betting that surging oil prices will obviate the need for continued interest rate hikes.
The yield differential (10-year T-notes minus 13-week T-bills) continues to fall. Differentials below 1.0% are long-term bear signals.
New York: Spot gold is close to the 10-year high, closing at $424.00 on Friday.
The primary trend is up. Expect resistance between the 10-year high of $427.25 and $430.
Last Friday's compressed spring pattern on the All Ordinaries was a false signal, caused by exceptional volume in Multiemedia [MUL], a stock that trades at below 4 cents a share. For that reason I have switched to the ASX 200 [XJO]: to minimize volume distortions from low-priced stocks. The ASX 200 includes only 10 stocks priced under a dollar, whereas the All Ords has more than 100.
The ASX 200 is consolidating in a narrow range above 3700, reflecting uncertainty from world markets. There is still plenty of buying support, as evidenced by high volumes on Wednesday and Thursday, but Friday's weak close indicates that this may be weakening. Two consecutive closes below 3700 would be a short-term bear signal (most false breaks, such as at [B], last only one day). Consecutive closes above the recent high, on the other hand, would be a bull signal, as at [A] in September.
The primary up-trend is strong. We should, however, allow for a correction that will test 3500 in the longer-term.
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~ Louis Pasteur