Selling Pressure Increases
By Colin Twiggs
November 21, 2009 2:30 a.m. ET (6:30 p.m. AET)
Major markets display a number of ascending broadening wedge reversal patterns and bearish divergences on Twiggs Money Flow, indicating increased selling pressure. While not conclusive until the patterns are completed by a breakout, they warn of a secondary correction.
The Dow encountered resistance at 10500 and is expected to test the lower border of the ascending broadening wedge formation. Broader wedges (with a megaphone appearance) are more reliable than narrower (telescope-style) wedges, but the formation nonetheless warns of a correction back to the base of the wedge at 9000. Bearish divergence on Twiggs Money Flow (13-week) reinforces the signal, warning of a secondary correction. Upward breakout from the formation is less likely, but would offer a target of 11000*
* Target calculation: 10000 + ( 10000 - 9000 ) = 11000
The S&P 500 retreated below support at 1100 after a marginal breakout, indicating trend weakness. Follow-through below 1080 would indicate a failed up-swing in the broadening ascending wedge pattern, warning of a correction to the base of the formation at 980. Bearish divergence on Twiggs Money Flow (13-week & 21-day) also 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 reversed at the upper border of its broadening wedge formation (right-angled ascending) and is headed for a test of support at 1650. Failure of support would offer a target of 1500*. Breakout above the upper border is less likely, but would indicate a primary advance to 1950*. Bearish divergence on Twiggs Money Flow (21-day) continues to warn of a correction; reversal below zero would strengthen the signal.
* Target calculation: 1650 - ( 1800 - 1650 ) = 1500 and 1800 + ( 1800 - 1650 ) = 1950
The TSX Composite failed in its attempt at a breakout above 11600, the upper border of a (right-angled descending) broadening wedge continuation pattern. Friday's blue candle indicates continued buying support and another breakout attempt is expected. Follow-through above 11700 would signal an advance to 12400*. Twiggs Money Flow (21-day) recovery above the declining trendline indicates rising buyer interest.
* Target calculation: 11600 + ( 11600 - 10800 ) = 12400
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The FTSE 100 reversed at the upper border of the right-angled ascending broadening wedge reversal pattern — expect a test of the lower border at 5000. Twiggs Money Flow (21-day) reversal below zero and continued bearish divergence warn of selling pressure. Failure of support (5000) would signal a correction with a target of 4600*. Breakout above the upper border is less likely, but would signal an advance to 5800*.
* Target calculation: 5000 - ( 5400 - 5000 ) = 4600 and 5400 + ( 5400 - 5000 ) = 5800
The failed up-swing on the DAX broadening wedge formation warns of a downward breakout and correction to 4700*. Twiggs Money Flow (21-day) reversal below zero and continued bearish divergence indicates selling pressure and increases the likelihood of a correction. Reversal below 5300 would confirm.
* Target calculation: 5300 -( 5900 - 5300 ) = 4700
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