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Trading Diary
January 15, 2005

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 failed to deliver a bull signal above 10600, edging downwards through the support level.
The index has formed a flag pattern, which generally signals continuation of a trend, so further weakness is likely. Buying support was evident on Wednesday at [1], with increased volume and a strong close. However, this seems to have faded with a large red candle at [2] and lower volume on the blue candle at [3]. Failure to close back above 10600 in the next few days would be a (intermediate) bear signal





The 21-day Twiggs Money Flow is below zero, signaling distribution. If initial support at 10350 (from the previous peak) does not hold, expect a test of support at 10000. A fall below that would be a bearish signal for the long-term.





The Nasdaq Composite index is edging lower (in a similar flag pattern to the Dow) after a sharp retreat from the marginal (false) break [d] above the previous high of [a]. Penetration of support at 2050 [b] would signal that a test of support at 1900 and possibly 1750 [c] is likely. Twiggs Money Flow (21-day) is below zero, signaling distribution.





The S&P 500 has penetrated the supporting trendline of a rising broadening wedge pattern. This is a bearish sign, signaling that a test of support at 1100 is likely.





Twiggs Money Flow is below zero, signaling distribution.
The primary trend direction is still upwards but we may be headed for a period of correction/consolidation. However, if the index holds above initial support levels of 1160 or 1140, that would be a bullish sign.
A fall below major support at 1100 would have (long-term) bearish implications.









Treasury yields

The yield on 10-year treasury notes has consolidated above 4.00% but has so far failed to make further gains. Soft long-term yields indicate that the bond market is holding its own, with no major outflows to equities.

The yield differential (10-year T-notes minus 13-week T-bills) has eased back below 2.0%. A fall below 1.0% would be a long-term bear signal for equity markets.







Gold

New York: Spot gold rallied briefly but failed to penetrate resistance at $430 and has now fallen back to $422.00. Expect a test of the $400 support level and possibly the 1-year low of $375.





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ASX Australia

The All Ordinaries displays profit-taking over the last week; a result of bearish sentiment in US equity markets. Tall shadows and long tails over the last 4 days signal consolidation. Increased volume tells us that selling is being met by equally strong buying. This warns that there is likely to be a strong move in the week ahead; the direction of the move will be signaled by a break above the last week's high or below the week's low.





The lower high on 100-day Twiggs Money Flow tells us to expect some form of consolidation/correction. Overall, the index appears strong but we need to bear in mind that at some point there is likely to be a correction back to 3450.





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Colin Twiggs


The novice cannot pass through these layers of increasing intensity of danger
without sensing that here ideas are governed by other factors,
 that the light of reason is refracted in a manner quite different
from that which is normal in academic speculation.

~ Claus von Clausewitz: Vom Kriege ("On War") (1831)

(the intensity of emotions in trading similarly refract the light of reason)





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