By Colin Twiggs
November 14, 2009 5:00 a.m. ET (9:00 p.m. AET)
A review of major markets reveals a rash of broadening wedge consolidations which continue to warn of a correction.
The Dow broke through 10000 to signal continuation of the up-trend, but the ascending broadening wedge formation warns of a correction back to 9000, the base of the wedge. Bearish divergence on Twiggs Money Flow (13-week) also warns of a secondary correction; reversal below zero by the shorter-term (21-day) indicator would confirm the signal, while recovery above the trendline would be a bullish sign. Upward breakout from the formation is less likely (27% according to Thomas Bulkowski), but would offer a target of 11000*
* Target calculation: 10000 + ( 10000 - 9000 ) = 11000
A reader (thank you Ed) drew my attention to the downward breakout on the Dow Financial Sector Index [DJU5]. The ascending broadening wedge target is only slightly lower at 240, but breakout below this level would indicate a far stronger correction* for the financial sector. It is too early, however, to extrapolate this to the entire market.
* Target calculation: 240 - ( 280 - 240 ) = 200
The S&P 500 displays a similar broadening ascending wedge; narrow consolidation makes breakout above 1100 likely — which would signal an advance to the upper wedge border. Failure to break through resistance at 11000, however, would increase the probability of a downward breakout. Bearish divergence on Twiggs Money Flow (13-week & 21-day) warns of a correction.
Broadening wedges on the Dow Transport Average and Fedex favor continuation of the primary up-trend. UPS recovery above its October high would also signal a primary advance.
The Nasdaq 100 shows a broadening wedge consolidation (right-angled ascending); failure of support at 1650 would offer a target of 1500*. Breakout above the upper border is less likely, but would indicate a primary advance to 1950*. Twiggs Money Flow (21-day) falling below zero would warn of a correction, while recovery above the trendline would be a bullish sign.
* Target calculation: 1650 - ( 1800 - 1650 ) = 1500 and 1800 + ( 1800 - 1650 ) = 1950
The TSX Composite shows a (right-angled descending) broadening wedge: a weak continuation pattern. Breakout above 11600 is likely after the short retracement and would signal an advance to 12400*. Bearish divergence on Twiggs Money Flow (21-day) warns of a secondary correction, but recovery above the trendline would be a bullish sign.
* Target calculation: 11600 + ( 11600 - 10800 ) = 12400
The FTSE 100 displays a right-angled ascending broadening wedge, warning of a reversal. Twiggs Money Flow (21-day) recovery above zero, however, indicates continued buying pressure — easing the possibility of a correction. Retreat below 5000 would offer a target of 4700*, while breakout above the upper border would signal an advance to 5600*.
* Target calculation: 5000 - ( 5300 - 5000 ) = 4700 and 5300 + ( 5300 - 5000 ) = 5600
The DAX broadening wedge consolidation favors continuation of the primary up-trend, but reversal below 5300 would warn of a correction to 4700*. Twiggs Money Flow (21-day) recovery above zero indicates short-term buying pressure.
* Target calculation: 5300 -( 5900 - 5300 ) = 4700
Man is not the enemy of man but through the medium of a false system of government.
~ Thomas Paine, The Rights Of Man (1791)