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Correction Looms

By Colin Twiggs
October 30, 2009 9:30 p.m. ET (12:30 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.



The one-day rally on the Dow and FTSE 100 indicates that bears dominate the market. Strong divergences on long-term Twiggs Money Flow confirm heightened selling pressure. Expect Asia-Pacific markets to reverse sharply after the weekend; I will provide separate coverage for them at close of market on Monday.

USA

Dow Jones Industrial Average

Bears overwhelmed Thursday's brief rally to close below short-term resistance at 9750, strong volume indicating commitment. Bearish divergences on Twiggs Money Flow (21-day & 13-week) warn of a secondary correction. Failure of support at 9500 would confirm. Recovery above 10100 is most unlikely, but would signal another primary advance. The initial target for a correction would be the 50% Fibonacci level at 9000*. Primary support is at 8100.

Dow Jones Industrial Average

* Target calculation: 10000 - ( 10000 - 8000 ) * 50% = 9000

S&P 500

The S&P 500 shows a strong bearish divergence on Twiggs Money Flow (13-week). Reversal below support at 1020 would confirm a secondary correction. The initial target for a correction would only be 1000*. Primary support is at 900.

Standard & Poors 500 chart

* Target calculation: 1100 - ( 1100 - 900 ) * 50% = 1000

Transport

The Dow Transport Average, together with UPS and Fedex, has started a secondary correction — a bearish sign for the economy.

Dow Jones Transportation Average

Technology

The Nasdaq 100 shows a strong bearish divergence on Twiggs Money Flow (13-week), warning of a secondary correction. Failure of support at 1650 would confirm. Initial target for a correction would be 1600*. Primary support is at 1400.

Nasdaq 100

* Target calculation: 1800 - ( 1800 - 1400 ) * 50% = 1600

Canada: TSX

The TSX Composite bearish divergence on Twiggs Money Flow (13-week) and index reversal below 11000 signal a secondary correction. Initial target is the 50% Fibonacci level at 10500*. Primary support is at 9600.

TSX Daily

* Target calculation: 11500 + ( 11500 - 9500 ) = 10500

United Kingdom: FTSE

The FTSE 100 is headed for a test of 5000. Bearish divergences on Twiggs Money Flow (13-week & 21-day) warn of a secondary correction. Failure of support at 5000 would confirm. The initial target would be the 50% Fibonacci level at 4700*. Primary support is at 4100.

FTSE 100 Daily

* Target calculation: 5300 - ( 5300 - 4100 ) = 4700

Germany: DAX

The DAX reversed below 5450 to signal a secondary correction. Bearish divergences on Twiggs Money Flow (13-week & 21-day) confirm. The initial target would be the 50% Fibonacci level at 5200*. Primary support is at 4550.

German DAX

* Target calculation: 5800 -( 5800 - 4600 ) = 5200



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People say that World War II cured the depression, but in fact, it made it worse. As bad as things were in the 30s, they were worse during the war in the 40s. You couldn't get shoes. You couldn't get gasoline. You couldn't get tires. You couldn't get just about anything that was being used for the war. The war prolonged and deepened the depression. The thing that ended the depression was not the war but the fact that since people could not consume, they were forced to save. That delayed consumption resulted in a huge amount of savings, and that's what caused the recovery in the late 1940s.

~ Doug Casey



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