Trading Diary
January 28, 2006

USA

The close below support at 1270 on the S&P 500 triggered strong buying, evidenced by narrow ranges and substantial volume. The index is headed for a test of short-term resistance at 1295, the recent high.

In the longer term, the index appears headed for another test of the upper border of the long-term bearish rising wedge pattern. An upward breakout from the pattern would signal acceleration of the primary up-trend. A downward breakout would signal a trend reversal. Twiggs Money Flow (21-day) shows uncertainty, with a higher low [b] following the recent lower high.

Buying support was also evident on the Dow Industrial Average notwithstanding last weeks close below intermediate support at 10700. The first three days of the week showed that buyers were capable of absorbing selling pressure: the index closed up on Monday and Tuesday despite the tall shadows. Twiggs Money Flow (21-day) formed a higher low, signaling early accumulation. Expect a test of resistance at 11000/11050.

The Dow Jones Transportation Average has resumed a primary up-trend, while Fedex and UPS have lost momentum.

The Nasdaq Composite respected the upper border of the long-term bearish rising wedge pattern and appears ready to commence a stronger primary up-trend. Twiggs Money Flow (21-day) recorded a higher low at [b], well above the zero line, signaling medium-term accumulation.

Treasury yields

The 10-Year treasury yield is preparing for another test of resistance at 4.60%. While a breakout would result in short-term pain, it would strengthen the weak yield differential (10-year T-notes minus 13-week T-bills), a long-term positive for the economy. Otherwise, the Fed may be forced to slow short-term interest rate hikes in order to shore up the flat yield curve -- while hoping that inflation does not take root.

The Big Picture: The S&P500 is in a long-term rising wedge pattern while the Dow remains range-bound between 10000 and 11000. The Nasdaq Composite index, on the other hand, is strengthening. The Dow Transport index resumed its' primary up-trend while the Fedex and UPS lead indicators display medium-term weakness. The flat yield curve is a long-term predictor of economic down-turns and is likely to weigh heavily on the market in the next few months. The market is making tentative advances but remains vulnerable to bad news.

Gold

New York: Spot gold continues to consolidate above support at $540, closing at $558.50 on Friday. The narrow consolidation, during a primary up-trend, is likely to resolve in a continuation of the trend.

The Big Picture: Gold is in a primary up-trend with a target of $580: 540 + (540 - 500). Increased demand signals weakness for the US dollar.

United Kingdom

After a false break below support the FTSE 100 resumed a strong up-trend. Twiggs Money Flow (21-day) formed a low above the zero line at [a], signaling accumulation.

The Big Picture: The primary trend is up, with a target close to 6000: 5500 + (5500 - 5140) = 5860.

Japan

The Nikkei 225 respected support at 15200, followed by a rally to test resistance at 16400. A new high, confirmed by a retracement or consolidation that holds above 16400, would signal that the strong primary up-trend will continue. Twiggs Money Flow (21-day) formed a low above the zero line at [a] -- a possible start of further accumulation.

The Big Picture: The Nikkei is in a strong primary up-trend. The retracement to 15200 may provide a base for further gains. The target for a breakout would be 17500: 16400 + (16400 - 15300).

ASX Australia

The All Ordinaries confirmed the strength of the up-trend with a strong blue candle on Friday, following a breakout above resistance at 4820. Earlier in the week the index tested support at 4730, with a long tail signaling buying strength. This was followed by increased volume at [3] as buyers encountered selling at the resistance level; the strong close again signaling buyers' commitment.

Twiggs Money Flow (21-day) rallied after a period of consolidation above the zero line at [A]: signaling accumulation.

The Big Picture: The index is in a strong primary up-trend with a target close to 5000: 4620 + (4620 - 4300) = 4940.