June 4, 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
The Dow Industrial Average has consolidated in a narrow
range above 10400 over the last two weeks. Volume does not yet
give a clear indication of a potential breakout, although higher
volume on Tuesday  and low volume at  could both be said to
favor the downside. A close above 10560 would signal a test of
resistance at 10900/11000; while a close below 10400 is also a
reasonable possibility and would signal a re-test of support at
The last year has established strong support at 10000/9750 with
successful tests at  through  and again at . There is
also strong resistance at 11000/11500, shown by price action from
1999 to 2001 and by recent highs at  and . I expect that we
will see a lot more price action between these levels before
there is a clear breakout.
The Nasdaq Composite
shows a more bullish
ascending triangle pattern
. Some may classify the pattern as
but I consider the last break above 2150 to be
Twiggs Money Flow
(21-day) signals active accumulation
(intermediate term). Expect a test of resistance at
2150/2180. A close above 2180 would signal resumption of the
If resistance holds, then a re-test of support at 1900 is likely.
The S&P 500 does not yet show clear direction in the
short-term: the break above 1200 halted after one day and now
appears headed for a re-test of support at 1190. If price
respects 1190 that would be a bullish sign, signaling a test of
resistance at the March high of 1225. A close below 1190 would
herald another visit to 1145/1140.
In the long-term the index is wedging upwards in a rough
formation. The pattern is meandering rather than
tight (with successive rallies and corrections clearly defining
the borders) but would add increased (bearish) significance to a
break below 1150. The primary trend will reverse upward if there
is a close above 1225 but beware of a marginal breakout that
respects the upper border of the wedge pattern; that would be
another bearish sign.
Twiggs Money Flow
(100-day), on the other hand, is rising
strongly and a pull-back that holds above the signal line would
be a strong bull signal.
The yield on 10-year treasury notes fell below support at 4.0%.
Friday pulled back to test resistance at the new level. A
successful test will signal further weakness, while failure would
signal a rally back to 4.5%. T-bills (13-week), on the other hand
have climbed to 2.9% and the
(10-year T-notes minus 13-week T-bills)
has fallen to 1.0%. Further falls would be a long-term bear
New York: Spot gold is whipsawing around the $420 level, closing
at $423.10 on Friday, in a gradual down-trend.
The primary trend will reverse downward if price falls below
support at the February low of $410.
The All Ordinaries
is testing resistance at 4140, while
the ASX 200 has already broken through and is headed for the
Strong volume and a narrow range
at  signaled that a
strong breakout was to be expected.
A close above the March highs, preferably by both indices, would
signal resumption of the primary up-trend. Beware, though, of a
marginal break above the highs; that would be a strong bear
Twiggs Money Flow
(21-day) signals strong accumulation in the
If resistance at 4255 holds then expect another test of support
at 3900. My warning about 3450 remains. I still see more downside
than upside and this could well be a stage 3 top. Failure of
support at 3900 would signal that a test of support at 3450 is
likely; amounting to roughly a 50% retracement of the previous
up-trend. A review of the
over the past 25 years shows that the index
regularly cuts back to test support at previous highs.
If we begin with certainties, we shall end in doubts;
but if we begin with doubts, and are patient in them,
we shall end in certainties.
~ Francis Bacon
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