Trading Diary
November 26, 2005

USA

After a strong surge to a new 3-year high the S&P 500 ended the week quietly with the Thanksgiving holiday on the 24th and reduced trading hours on Friday [4]. Look for confirmation from a retracement that respects the new support level at 1245.

In the long-term the index is testing the upper border of the bearish rising wedge pattern. A breakout above the wedge pattern would signal a stronger up-trend with a target of 1500: 1260 + (1160 - 800) = 1620. A reversal at the upper border, however, would mean a further test of the lower edge of the pattern. Twiggs Money Flow (21-day) signals accumulation with a sharp climb above the zero line.

The Dow Industrial Average is headed for another test of resistance at 11000. Twiggs Money Flow (21-day) is rising steeply above zero, signaling accumulation. In the long-term the Dow faces heavy resistance at 11000/11500 and strong support at 10000.

The Dow Jones Transportation Average and its two stalwarts, Fedex and UPS, have all commenced strong primary up-trends: a bullish sign for the equity market.

The Nasdaq Composite has broken above the upper border of the bearish rising wedge pattern. Twiggs Money Flow (21-day) signals accumulation, climbing steeply above zero. This is a positive sign for the general equity market. Look for confirmation from a retracement that respects support above, say, 2200.

Treasury yields

Short-term yields are rising while long-term yields continue to retreat from resistance at 4.60%. The yield differential (10-year T-notes minus 13-week T-bills) is low and the Fed faces a tough choice: continue to hike short-term rates, and end up with a negative yield curve, or ease off the rate hikes and risk having inflation take root. Either result could have negative consequences.

Gold

New York: Spot gold is close to $500, closing at $495.70 on Friday. Expect profit-taking at the resistance level before an attempted breakout.

United Kingdom

After a brief hesitation the FTSE 100 broke through resistance at 5500 on Tuesday at [2]. The index is consolidating, with a quick test of the new support level at [4]. Volume dropped off sharply at the end of the week, repeating the pattern from last year's Thanksgiving holidays in the US. Twiggs Money Flow (21-day) shows short-term accumulation. The target for the breakout is close to 6000: 5500 + (5500 - 5140) = 5860.

Japan

The Nikkei 225 also enjoyed a short week with Labor Thanksgiving Day on Wednesday. The index consolidated for most of the week but is in an accelerating curve; so we need to beware of sharp reversals. Twiggs Money Flow (21-day) is exceptionally strong, forming troughs high above the zero line. The primary up-trend should continue for some time, with a long-term target above 16000: 12000 + ( 12000 - 7600 [April 2003]) = 16400.

ASX Australia

The All Ordinaries is consolidating below resistance at 4620. Strong volume and a red candle at [2] signaled profit-taking at the previous high, while strong volume and a blue candle at [4] indicate buying support. A weaker close at [5] signals diminishing buyer interest, possibly awaiting a further lead from US markets. Consolidation in a narrow band below resistance is likely to resolve in an upward breakout, but a close below 4560 would be a bearish sign.

Twiggs Money Flow (21-day) signals accumulation and the index is in a strong primary up-trend. A breakout above 4620 would present a target close to 5000: 4620 + (4620 - 4320) = 4920. On the other hand, though unlikely, failure to break above resistance would signal a test of primary support at 4320.