Watch Transport Stocks
By Colin Twiggs
August 17, 2010 5:30 a.m. ET (7:30 p.m. AET)
Global markets continue their bearish consolidation, despite encouraging signs from China, with the Hang Seng in a new primary up-trend and mainland indexes rallying. Of the big five markets, however, only the DAX remains in a primary up-trend. Watch bellwether transport stocks: a primary down-trend often leads other sectors into a reversal.
October is the most bearish month in the year, with many major recorded crashes (1929, 1987). We are likely to see consolidation until the end of the quarter, followed by a breach of support. The breach, however, may either resolve into a primary down-trend or rally sharply to complete a bear trap. All we can do is remain vigilant and stick to objective signals — avoid being swayed by the mood of the market.
The broadening wedge continues, with the Dow reversing below short-term support at 10400. Small bodies on the last three candles and a long tail on Monday warn of buying support. Recovery above 10400 would indicate a test of the upper wedge border. Twiggs Momentum (21-day) respect of the zero line would be a bullish sign. Follow-through below 10200, however, would test the lower wedge border.
* Target calculations: 9700 - ( 10700 - 9700 ) = 8700 and 10700 + ( 10700 - 9700 ) = 11700
S&P 500 reversal below its former primary support level at 1050 would confirm the primary down-trend. Twiggs Money Flow (13-week) crossing to below zero would indicate selling pressure.
* Target calculation: 1050 - ( 1200 - 1050 ) = 900
The Dow Transport Index, together with major components Fedex and UPS, is headed for a test of support at 3900. Failure would confirm the primary down-trend, with negative implications for the broader economy.
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The Nasdaq 100 is testing short-term support at 1800. Failure would signal a swing to the lower border of the broadening wedge. Bearish divergence on the 63-day Momentum Oscillator warns of a primary down-trend. Twiggs Money Flow (13-week) falling below zero would also indicate selling pressure.
TSX Composite is likewise testing support at 11500; failure would signal a down-swing to the lower wedge border. 63-day Twiggs Momentum below zero warns of a down-trend, especially when following a large bearish divergence.
Twiggs Money Flow (13-week) declining below zero warns of continuation of the primary down-trend. Reversal below the former primary support level at 5000 would confirm.
* Target calculation: 4800 - ( 5400 - 4800 ) = 4200
Twiggs Money Flow (13-week) fell below zero, warning of selling pressure. Reversal below 6000 would signal a test of primary support at 5700. Bearish divergence on 63-day Twiggs Momentum Oscillator warns of reversal to a primary down-trend. Failure of support at 5700 would confirm.
* Target calculation: 6350 + ( 6350 - 5700 ) = 7000
Twiggs Money Flow (13-week) respecting the zero line from below is a strong bear signal. Expect a test of support at 3350. Failure would offer a target of 2950*.
* Target calculation: 3350 - ( 3750 - 3350 ) = 2950
The Sensex is testing its new support level at 18000. Respect would confirm the breakout and offer a target of 20000*. Declining Twiggs Money Flow (13-week), however, warns of medium-term selling pressure. Expect further tests of the new support level. Reversal below 17400 is unlikely, but would test primary support at 16000.
* Target calculation: 18000 + ( 18000 - 16000 ) = 20000
The Straits Times Index is examining short-term support at 2920. Failure would test primary support at 2650. Twiggs Momentum Oscillator (63-day) reversal below zero would be a bear signal, while respect of the zero line would indicate continuation of the up-trend.
Twiggs Money Flow (13-week) declining below zero warns of selling pressure. Failure of support at 9000 would signal another primary down-swing, with a target of 8000*.
* Target calculation: 9000 - ( 10000 - 9000 ) = 8000
The DJ South Korea Index respected its new support level at 370. Declining Twiggs Money Flow (13-week), however, warns of continued selling pressure. Failure of support would warn of a correction to test primary support at 335.
* Target calculation: 370 + ( 370 - 335 ) = 405
The DJ China Index respected short-term support at 315, signaling further gains. But the primary trend remains downward, and failure of the new support level would test primary support at 275. 63-day Twiggs Momentum Oscillator respect of the zero line would warn of another down-swing, while recovery above the line would indicate a reversal.
The Hang Seng Index is testing its new support level at 21000 after commencing a primary advance. Twiggs Money Flow (13-week) respect of the zero line would signal buying support. Bullish divergence on 63-day Momentum Oscillator indicates a primary up-trend. Reversal below the rising trendline is unlikely, but would warn of a bull trap.
* Target calculations: 21000 + ( 21000 - 20000 ) = 22000
The All Ordinaries is headed for another test of 4650. Twiggs Momentum Oscillator (21-day) recovery above zero is a positive sign. Bear in mind, however, that approximately two-thirds of upward breakouts during a primary down-trend are bull traps — confirmation is required.
Twiggs Money Flow (13-week), however, is declining. A fall below zero would warn of selling pressure. Breakout above 4650 would signal a primary advance, but, again, wait for confirmation.
* Target calculation: 4200 - ( 4600 - 4200 ) = 3800
Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body — the producers and consumers themselves.
~ Herbert Hoover (1874-1964)