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Financial Woes

By Colin Twiggs
July 12, 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.

Financial Stocks

Stock markets were spooked by the collapse of IndyMac, the third largest bank failure in US history, and the sharp fall of Fannie Mae and Freddie Mac over the past week. Massive volume in the last few days indicates the presence of strong buyers who see value at current prices. Entry at this stage would be exceedingly risky, but the stocks are worth watching over the next few weeks.

Fannie Mae

Crude Oil & Gold

West Texas Intermediate Crude made a failed breakout above $146/barrel, but is now consolidating in a narrow range between $143 and $146: a bullish sign. Upward breakout would offer a target of 146+(146-135)=157. Reversal below $135 is unlikely — and would warn of a secondary correction.

Crude Oil

Spot gold broke through resistance at $950, signaling another test of $1000. The last retracement respected support at the preceding high of $910. This indicates a strong up-trend.

Spot Gold

USA

Dow Jones Industrial Average

The Dow is testing support at 11000. Light volume indicates that this level is unlikely to hold.

Dow Jones Industrial Average short-term chart

Long Term: Failure of 11000 would test the June 2006 low of 10700. Twiggs Money Flow warns of continued selling pressure. If 10700 was to fail, the next major support band is 10000/9700.

Dow Jones Industrial Average long-term chart

S&P 500

The S&P 500 is headed for a test of 11000 after breaking out of the narrow consolidation below 1270. Twiggs Money Flow below its March low indicates continued selling pressure. The Volume Oscillator by contrast has ticked up at [A], showing buying support — possibly due to accumulation on FNM and FRE — a signal not confirmed by the Dow.

Standard & Poors 500 chart

Transport

Transport stocks FedEx and UPS both continue in strong primary down-trends, with negative implications for the broader economy.

Fedex chart

Small Caps

The Russell 2000 Small Caps index bounced off primary support at 645. Recovery of the ratio to the Russell 1000 above its recent high would be surprising, indicating that small caps continue to be favored over "safer" large caps.

Russell 2000 Small caps

Technology

The Nasdaq 100 is consolidating between 1870 and 1800: a continuation pattern. Expect a downward breakout, signaling a test of primary support at 1700. Twiggs Money Flow oscillating below zero indicates continued selling pressure.

Nasdaq 100

Canada: TSX

The TSX Composite is consolidating in a narrow range between 14000 and 13600: a continuation pattern. Light volume indicates that downward breakout is most likely — which would test primary support at 12700. Twiggs Money Flow crossed below zero, confirming selling pressure.

TSX

United Kingdom: FTSE

The FTSE 100 broke through primary support at 5400, offering a target of 5400-(6400-5400)=4400. Twiggs Money Flow (21-day) oscillating below zero indicates continued selling pressure.

FTSE 100

Europe: DAX

The German Dax broke through primary support at 6200, offering a target of 5300, the June 2006 low. The actual calculation is 6200-(7200-6200)=5200.

German DAX

India: Sensex

The Sensex respected resistance at 14000 and a decline to the March 2007 low of 12400 is now likely. Reversal below 13000 would confirm. Twiggs Money Flow holding below zero indicates selling pressure.

Sensex India

Japan: Nikkei

The Nikkei 225 is consolidating in a narrow band at support at 13000. Continuation of the down-trend is likely, possibly testing primary support at 11800. Recovery above 13400, while unlikely, would signal a rally to 14400. Twiggs Money Flow holding below zero indicates that sellers dominate.

nikkei 225 japan

China

The Hang Seng respected primary support at 21000. Twiggs Money Flow (21-day) now shows a higher low, forming a triangle. Breakout from the triangle would signal future direction.

Hang Seng index Hongkong

The Shanghai Composite displays a similar, though smaller, triangle on Twiggs Money Flow — upward breakout indicates buying pressure. Recovery above 3000 would herald a rally to 3700, while reversal below 2700 would warn of another primary down-swing — with a target of 2000.

Shanghai Composite Index China

Australia: ASX

The All Ordinaries is consolidating in a narrow band between 5100 and 5000: a continuation signal. Light volume indicates that a downward breakout is likely.

ASX All Ordinaries short-term chart

Long Term: Expect support at 4800, the June 2006 low, but the calculated target is 4400 [5200-(6000-5200)]. Twiggs Money Flow below zero signals continued selling pressure.

ASX Australia All Ords long-term


The essence of philosophy is that a man should so live that his happiness shall depend as little as possible on external things.

~ Epictetus (first century A.D.)

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