Bear Market Rally
By Colin Twiggs
March 23, 2009 8:30 p.m. ET (11:30 a.m. AET)
Spot gold made a sharp upward spike four days ago, in response to Fed plans to expand the money supply. After testing the band of support between $890 and $900, the market rallied on the same day to a high of $940. The strong reversal signals another rally to test $1000. A short retracement that respects the rising trendline would confirm. Failure of support (between $890 and $900) is unlikely, but would warn of a down-swing to test $700.
The recent bull trap on the US Dollar Index, with marginal break above 89 followed by a sharp drop, warns of a primary trend reversal. Failure of support at 78 would confirm. A weakening dollar would drive the gold price higher.
West Texas Crude broke through resistance at $50 per barrel, completing a triple bottom reversal. While the primary trend has not reversed, expect a bear market rally with a target of $65. Reversal below $50 is unlikely, but would signal a bull trap — warning of another test of support between $33 and $35 per barrel.
Dow futures climbed by 190 points before the opening, with the Dow staging an optimistic recovery to break resistance at 7500 — in anticipation of Treasury plans to remove toxic assets from financial sector balance sheets. Sharp rallies are typical of a bear market. Expect a test of 8000, with a possible rally to 9000, but the primary trend is unlikely to change. The primary target remains at 6000; calculated as 7500 - ( 9000 - 7500 ).
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The FTSE 100 broke through 3900 and is likely to test 4300. The primary target, however, remains at 3000; calculated as 3800 - (4600 - 3800).
The Dax gapped through resistance at 4100 and is likely to test 4700. The primary target, however, remains at 3000; calculated as 4000 - ( 5000 - 4000 ).
The Nikkei 225 broke through 8000 and is expected to test the next band of resistance, between 9000 and 9200. Breakout above that level would signal a primary trend reversal.
In the end, it is earnings — profit and profit potential that moves stock,
not emotions, like hope and greed.
~ Jesse Livermore: How To Trade In Stocks