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Good News For Resources Stocks

By Colin Twiggs
August 3, 6:30 a.m. ET (8:30 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.


I will leave this as a reminder over the next few weeks:
This is no blue sky rally. Enjoy it while it lasts. But bear in mind that it could end badly.
And keep your stops tight.

Resources Stocks

The CRB Commodities Index broke through resistance at 255 to confirm the end of the secondary correction — already flagged by the unusually long tail on Wednesday. Recovery is a bullish sign for resources stocks. Breakout above 266 would signal a primary advance with a target of 300*. Reversal below 230 is unlikely, but would warn of a test of primary resistance at 200.

CRB Commodities Index

* Target calculation: 265 + ( 265 - 230 ) = 300

USA

Dow Jones Industrial Average

The Dow broke out above 9100, confirming the primary advance with a target of 10000*. Retreating Twiggs Money Flow (21-Day) indicates another retracement to test support at 9000 in the short term, but reversal below 8800 is unlikely — and would warn of a bull trap.

Dow Jones Industrial Average

* Target calculation: 9000 + ( 9000 - 8000 ) = 10000

S&P 500

The S&P 500 is testing resistance at 1000; breakout would indicate a primary advance with a target of the August 2008 high at 1300*. Rising Twiggs Money Flow (13-Week) confirms the up-trend. Reversal below 950 is unlikely, but would warn of a bull trap.

Standard & Poors 500 chart

* Target calculation: 1000 + ( 1000 - 700 ) = 1300

Transport

The Dow Transport Average and bellwether stock Fedex are in a primary up-trend, a positive sign for the economy, but UPS is still some way off its May high.

Dow Jones Transportation Average

Technology

The Nasdaq 100 is consolidating in a narrow band at 1600. The upward breakout is unconvincing, with tall shadows and Twiggs Money Flow (21-Day) reversal indicating resistance. Follow-through above 1630 would signal an advance to 1700*, while reversal below 1580 would warn of a test of 1500.

Nasdaq 100

* Target calculation: 1600 + ( 1600 - 1500 ) = 1700

Canada: TSX

The TSX Composite reversed above resistance at 10700, after a brief retracement respected 10400, indicating a primary advance with a target of 11700*. The short duration is a bullish sign and, together with rising Twiggs Money Flow (21-Day), indicates buying pressure. Reversal below 10400 is most unlikely, but would warn of a bull trap.

TSX Daily

* Target calculation: 10700 + ( 10700 - 9700 ) = 11700

United Kingdom: FTSE

The FTSE 100 respected the new support level at 4500, but Twiggs Money Flow (21-Day) retreating towards zero indicates another retracement. Respect of support would signal a primary advance with a target of 5000*; confirmed if resistance at 4650 is penetrated. Reversal below 4350 is unlikely, but would warn of a bull trap.

FTSE 100 Daily

* Target calculation: 4500 + ( 4500 - 4000 ) = 5000

Europe: DAX

The DAX likewise respected its new support level at 5150, but Twiggs Money Flow (21-Day) retreating towards the zero line indicates another retracement. Breakout above 5400 would confirm a primary advance with a target of 5700*. Reversal below 5000 is unlikely, but would warn of a bull trap.

German DAX

* Target calculation: 5100 + ( 5100 - 4500 ) = 5700

India: Sensex

The Sensex broke through resistance at 15500, signaling a primary advance with a target of 17500*. The brief retracement that respected support at 14800 is a bullish sign and, along with rising Twiggs Money Flow (21-Day), indicates buying pressure. Reversal below 14800 is now most unlikely, but would warn of a down-swing to test 13200.

Sensex India

* Target calculation: 15500 + ( 15500 - 13500 ) = 17500

Japan: Nikkei

The Nikkei 225 broke through resistance at 10200, signaling a primary advance with a target of 11000*. Rising Twiggs Money Flow (13-Week & 21-Day) signals buying pressure. Reversal below 10000 would warn of a bull trap.

nikkei 225 japan

* Target calculation: 10000 + ( 10000 - 9000 ) = 11000

South Korea

The Seoul Composite Index continues its strong primary advance towards 1700*. Rising Twiggs Money Flow (13-Week) confirms the up-trend. Reversal below the new support level at 1450 is most unlikely, but would warn of a bull trap.

Seoul Composite Index

* Target calculation: 1450 + ( 1450 - 1200 ) = 1700

China

Despite a sharp drop last Wednesday, the Shanghai Composite Index continues in an accelerating up-trend (sometimes referred to as a "runaway trend" or, if it endures for some time, as a "bubble"). Short duration of the retracement signals strong buying pressure — confirmed by Twiggs Money Flow (13-Week) elevated well above the zero line. The up-trend may continue for some months, but the absence of strong corrections makes market support increasingly precarious.

Shanghai Composite Index China

The Hang Seng is approaching its target of 21000*. Rising Twiggs Money Flow (13-Week & 21-Day) indicates strong buying pressure. Reversal below the new support level at 19000 [green] is most unlikely, but would warn of a bull trap.

Hang Seng Index Hongkong

* Target calculation: 19000 + ( 19000 - 17000 [red] ) = 21000

Australia: ASX

The All Ordinaries continues its primary advance with a target of 4400*, benefiting from rising commodities prices. Rising Twiggs Money Flow (21-Day) signals buying pressure, but breakout below the rising trendline would warn of retracement to test the new support level at 4050. Reversal below 4000 is unlikely, but would warn of a bull trap.

ASX All Ordinaries

* Target calculation: 4050 + ( 4050 - 3700 ) = 4400

The ASX 200 also continues a strong primary advance with rising Twiggs Money Flow (13-Week) indicating buying pressure. Reversal below 4000 is unlikely, but would again warn of a bull trap.

ASX 200


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~ Thomas Jefferson (1743 - 1826)

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