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China Tests Support

By Colin Twiggs
July 5, 3:00 a.m. ET (5:00 p.m. AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.

Crude Oil

Rising fuel prices and the credit squeeze in financial markets are both likely to slow consumption, causing stocks to weaken.

West Texas Intermediate Crude respected support at $139/$140 and is now headed for a test of the upper trend channel. This should coincide with the target of $135+(135-122)=$148. Reversal below $139 is unlikely — and would warn of a test of $131.

Crude Oil

USA

Dow Jones Industrial Average

The Dow's narrow consolidation above 11200 is a continuation signal. Declining volume [D], though partly attributable to the short week, is typical of a short-term consolidation. Expect a test of 11000/10700.

Dow Jones Industrial Average short-term chart

Long Term: Breach of primary support at 11750 offers a target of 12000-(13000-12000)=11000. A more aggressive target would be the June 2006 low of 10700. Twiggs Money Flow continues to warn of selling pressure.

Dow Jones Industrial Average long-term chart

S&P 500

The S&P 500 broke through primary support at 1270, offering a target of 1270-(1420-1270)=1120. Thursday's doji candlestick reflects indecision; a break on Monday above the high or low would indicate short-term direction. Twiggs Money Flow (13-week) below its March low, however, warns of selling pressure.

Standard & Poors 500 chart

Transport

FedEx and UPS both warn that the Dow Transport Index is likely to reverse to a primary down-trend — with negative implications for the broader economy.

Fedex chart

Small Caps

The Russell 2000 Small Caps index is headed for a test of primary support at 645. Small caps are once again out of favor now that the market is falling — as reflected by the declining ratio to the Russell 1000 (large caps).

Russell 2000 Small caps

Technology

The Nasdaq 100 formed a short-term broadening pattern which should resolve into a test of primary support at 1700. Twiggs Money Flow oscillating below zero warns of selling pressure. In the longer term, breakout below 1700 would offer a target of 1700-(2000-1700)=1400.

Nasdaq 100

United Kingdom: FTSE

The FTSE 100 is testing primary support at 5400. Twiggs Money Flow (21-day) oscillating below zero warns of selling pressure. Recovery above Monday's high is unlikely — and would signal another test of 6400. Breach of 5400 would offer a target of 5400-(6400-5400)=4400.

FTSE 100

India: Sensex

The Sensex pennant at 13000 signals continuation of the down-trend. Volume is rising instead of declining, however, increasing the chance of a reversal. The calculated target is 12500, but wait for a breakout to signal direction.

Sensex India

Japan: Nikkei

The Nikkei 225 broke through medium-term support at 13500, confirming another test of primary support at 11800. Twiggs Money Flow reversed below zero, indicating short-term selling pressure.

nikkei 225 japan

China

The Hang Seng is testing primary support at 21000. Failure would offer a target of 21000-(26000-21000)=16000. Twiggs Money Flow below its March low warns of a primary down-swing.

Hang Seng index Hongkong

The Shanghai Composite broke through 2700, signaling a test of the next support level at 2500 (from February 2007). The calculated target is 2000, but Twiggs Money Flow has formed a triangle, indicating a possible reversal if the red trendline is broken.

Shanghai Composite Index China

Australia: ASX

The All Ordinaries broke through primary support at 5150. Light volume [D] and a blue candle show hesitancy with the US markets closed. Monday is likely to behave similarly without the normal Friday weather reading from the Dow. Reversal below 5100 would signal another decline, while recovery would not have much significance unless it carried above 5450.

ASX All Ordinaries short-term chart

Long Term: Failure of primary support offers a target of 5200-(6000-5200)=4400, but expect some buying at 4800 (the June 2006 low). Twiggs Money Flow (13-week) below its March low signals selling pressure.

ASX Australia All Ords long-term


Seek not that the things which happen should happen as you wish; but wish the things which happen to be as they are, and you will have a tranquil flow of life.

~ Epictetus (first century A.D.)

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