September 15, 2006 6:15 a.m. ET (8:15 p.m. AET)
Falling crude oil prices and a declining Dow Transport Index signal reduced inflationary pressures -- resulting in falling bond yields. The yield differential remains negative but probability of recession in the next four quarters is still a modest 34 per cent according to the Wright model.
Gold weakened on the back of falling crude prices/inflation fears. Despite this and a stronger bond market the dollar has failed to appreciably strengthen.
Long Term: The Dow continues in a primary up-trend, with resistance from the all-time high at 11750 and support at 10700.
Long Term: The S&P 500 remains in a slow primary up-trend, with support at 1220.
Ten-year Treasury note yields consolidated below 4.80% as inflation fears resurfaced.
Medium Term: The yield differential (10-year T-notes minus 13-week T-bills) is close to zero. The primary cause has been the fall in long-term yields rather than rising short-term yields, reducing the significance.
Spot gold formed a brief consolidation below $600 before breaking through support.
Medium Term: Falling crude oil prices should weaken gold and strengthen the dollar. Expect gold to test primary support at $540.
Long Term: The primary trend remains upward until there is a fall below $540.
Light Crude has fallen to $64.11 per barrel. The down-trend should encounter a strong band of support between $55 and $60, possibly triggering a short recovery.
The US Dollar Index has consolidated in a fairly narrow range over the last few months. Remember this is a weekly chart, so the consolidation pattern is not a flag, however the longer-term down-trend is likely to continue. Any breakout below the support level will signal a test of the extreme low of 80.00, last reached in early 2005. A weakening dollar would provide support for the gold price.
An upward breakout, though less likely, is likely to test resistance at 93.00; and a breakout above that level, though not very promising at this stage, would complete an inverted head and shoulders.
The FTSE 100 has seen a surge in volumes in the last 3 days, accompanied by signs of distribution: a doji candle on Wednesday followed by a gravestone [Th]. Intermediate support at 5850 may be under threat.
Medium Term: Activity levels have been low throughout July and August, and I suspect that this rally is going to struggle to break through the April high of 6130. Twiggs Money Flow (21-day) has retreated to zero, signaling uncertainty.
Long Term: The primary up-trend remains until primary support at 5500 is penetrated.
The Nikkei 225 has so far respected support at 15700. Failure of this level would signal a slowing of the intermediate up-trend, but as long as the index remains within the channel the longer-term trend remains positive.
Medium Term: Twiggs Money Flow (21-day) continues in a narrowing triangle around the zero line, signaling uncertainty. The next target for the up-trend is the April high of 17500, but we would need to see an improvement in TMF for this to be achieved.
Long Term: The primary up-trend remains up, with support at 14200.
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The All Ordinaries retraced for 5 days before rallying on Wednesday, stronger volumes signaling the presence of buying support. The rally only lasted 2 days, however, before a red candle [F] warns of further weakness. A fall below Tuesday's low would signal that a test of support at 4800 is likely, while a rise above Thursday's high would signal another test of resistance at 5100.
Long Term: The All Ordinaries continues in a primary up-trend.
to win the respect of intelligent people
and the affection of children;
to earn the appreciation of honest critics
and endure the betrayal of false friends.
To appreciate beauty;
to find the best in others;
to leave the world a bit better
whether by a healthy child, a garden patch
or a redeemed social condition;
to know that even one life has breathed easier
because you have lived.
This is to have succeeded.
~ Ralph Waldo Emerson (1803 - 1882)