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China & Commodities Bearish Influence

By Colin Twiggs
August 31, 4:00 a.m. ET (6:00 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.


Commodities

The Baltic Dry Index reflects bulk international commodity shipping rates and provides advance warning of changes to commodities prices and the Shanghai Composite Index. Decline in the BDI since early June was a precursor to the fall in both the Shanghai and CRB Commodities Indexes. Respect of support at 2300 [orange] would signal that the correction has ended, while failure of primary support at 1500 would warn of reversal to a down-trend.

Baltic Dry Index

The CRB Commodities Index is undergoing a secondary correction as a result of falling demand from China. Failure of short-term support at 253 would confirm the signal, while breakout above the declining trendline would suggest that the correction is over — the short duration indicating a strong primary up-trend.

CRB Commodities Index

USA

Dow Jones Industrial Average

The Dow is consolidating in a narrow band between 9500 and 9600. A down-turn would warn of another test of support at 9100, while upward breakout would signal an advance to 9700*. In the medium term, failure of support at 9100 would warn of a secondary correction; while the upside target is 10000*. Twiggs Money Flow (21-day) reversal below 0.2 would warn of selling pressure.

Dow Jones Industrial Average

* Target calculations: 9400 + ( 9400 - 9100 ) = 9700 and 9000 + ( 9000 - 8000 ) = 10000

S&P 500

Bearish divergence on Twiggs Money Flow (21-day), for the S&P 500, warns of selling pressure. Failure of support at 980 would signal a secondary correction, while breakout above 1040 would indicate an advance to 1120*.

Standard & Poors 500 chart

* Target calculation: 1000 + ( 1000 - 880 ) = 1120

Transport

The Dow Transport Average and Fedex continue their primary up-trend, a positive sign for the broader economy, while UPS consolidates in a narrow band [orange]. UPS upward breakout would complete the positive outlook for the economy, while reversal would suggest caution.

Dow Jones Transportation Average

Technology

The Nasdaq 100 displays a broadening top, a bullish continuation pattern, but bearish divergence on Twiggs Money Flow (21-day) warns of selling pressure. Breakout from the formation, or a failed (partial) swing will indicate future direction.

Nasdaq 100

Canada: TSX

The TSX Composite is testing resistance at 11000; breakout would signal a primary advance with a target of 12000*. Rising Twiggs Money Flow (13-Week) indicates buying pressure. Failure of support at 10500 is unlikely, but would warn of a secondary correction.

TSX Daily

* Target calculation: 10700 + ( 10700 - 9600 ) = 11800

United Kingdom: FTSE

The FTSE 100 continues its primary advance, headed for a test of the upper trend channel at 5000*. Rising Twiggs Money Flow (13-Week) signals buying pressure. Reversal below 4600 is unlikely, but would warn of a secondary correction.

FTSE 100 Daily

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

Europe: DAX

The DAX is testing resistance at 5500. Upward breakout would signal an advance to the upper trend channel, with a target of 6000*. Rising Twiggs Money Flow (13-Week) indicates buying pressure. Reversal below 5200 is unlikely, but would warn of a secondary correction.

German DAX

* Target calculation: 5200 + ( 5200 - 4500 ) = 5900

India: Sensex

The Sensex is testing resistance at 16000; breakout would signal a primary advance with a target of 17500*. Rising Twiggs Money Flow (21-Day) signals buying pressure. Reversal below support at 14800 is unlikely, but would warn of another secondary correction.

Sensex India

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

Japan: Nikkei

The Nikkei 225 is consolidating between 10200 and 10600. Upward breakout would signal an advance to the upper channel border, with a target of 11000*; while reversal below 10200 would warn of a secondary correction. Rising Twiggs Money Flow (13-week) indicates buying pressure.

nikkei 225 japan

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

South Korea

The Seoul Composite Index is consolidating in a narrow band above the new support level at 1600 — a bullish sign. Rising Twiggs Money Flow (21-day) indicates buying pressure. Breakout above 1620 is likely and would signal a primary advance with a target of 1700*. Reversal below 1600, however, would warn of weakness; and failure of support at 1530 would confirm a secondary correction.

Seoul Composite Index

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

China

The Shanghai Composite Index is consolidating in a narrow band below 3000 — a bearish sign. Declining Twiggs Money Flow (21-Day) indicates selling pressure. Downward breakout is likely and would signal a swing to 2300* — bad news for resources stocks. Reversal above 3000 is unlikely, but would indicate another test of 3500. Primary support is at 2100.

Shanghai Composite Index China

* Target calculations: 2800 - ( 3300 - 2800 ) = 2300

The Hang Seng is consolidating in a narrow band below 21000. Normally a bullish sign, that is not the case here, with the index slipping below initial support at 20400 to test 20000. Failure of support at 20000 would signal a secondary correction. Declining Twiggs Money Flow (13-week) indicates selling pressure. Recovery above 21000 is unlikely, but would signal an advance to the upper trend channel.

Hang Seng Index Hongkong

Australia: ASX

Resources stocks face selling pressure from falling commodity prices. The All Ordinaries encountered resistance at 4500, with declining Twiggs Money Flow (21-day) signaling weakness. Reversal below 4300 would warn of a secondary correction, while breakout above 4500 would indicate an advance to the upper trend channel.

ASX All Ordinaries

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

The ASX 200 is also testing resistance at 4500. Reversal below 4300 would signal a correction, while recovery above 4500 would indicate another test of the upper trend channel. Twiggs Money Flow (13-week) reversal below 0.2 would warn of selling pressure.

ASX 200

Remember the big picture:l 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.



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