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September window-dressing

By Colin Twiggs
September 27, 2010 3:30 a.m. ET (5:30 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.



Stocks rally as we approach the end of the third quarter, but fund managers may be supporting prices to window-dress their balance sheets. Expect a mid-October retracement (as in 2007) to test the new support level.

The Dow Global index ($DJWO) broke through resistance at 228, signaling the start of a primary up-trend. Twiggs Money Flow (13-week) holding above the zero line strengthens the signal. It would be prudent, however, for long-term investors to wait for a mid-October retracement to confirm the breakout.

Dow Jones Global Index

USA

Dow Jones Industrial Average

The Dow broke through resistance at 10700, signaling an advance to 11200 in the short-term. Twiggs Money Flow (13-week) respect of the zero line indicates buying pressure. The long-term target for a breakout above 11200 would be 12700*, but it would be prudent to wait for retracement in October to confirm the new support level (at 10700).

Dow Jones Industrial Average

* Target calculations: 11200 + ( 11200 - 9700 ) = 12700

S&P 500

The S&P 500 broke resistance at 1130, indicating a primary advance to 1220*. Rising 63-day Twiggs Momentum suggests an up-trend. Expect a mid-October retracement to test the new support level at 1130.

Standard & Poors 500 chart

* Target calculation: 1130 + ( 1130 - 1050 ) = 1210

Transport

Fedex reversal below the rising trendline would indicate that the rally is weakening. Reversal below 78.00 would indicate a primary down-trend, while recovery above 87.50, to signal a primary up-trend, remains as likely.

UPS & Fedex

Technology

The Nasdaq 100 is headed for a test of resistance at 2060. A strong rise on Twiggs Money Flow (13-week) indicates buying pressure. Breakout above 2060 in October would test the 2007 high of 2250*.

Nasdaq 100

* Target calculation: 2050 + ( 2050 - 1750 ) = 2350

Canada: TSX

TSX Composite is testing resistance at 12300. October breakout would offer a long-term target of 13400*. A 63-day Twiggs Momentum trough above the zero line would signal an up-trend.

TSX Daily

* Target calculation: 12300 + ( 12300 - 11200 ) = 13400

United Kingdom: FTSE

The FTSE 100 is advancing to the April high of 5800*. Bearish divergence on Twiggs Money Flow (13-week), however, continues to warn of weakness.

FTSE 100 Daily

* Target calculation: 5400 + ( 5400 - 5100 ) = 5700

Germany: DAX

The DAX is consolidating below resistance at 6300/6350. Breakout would signal an advance to 6900*, but bearish divergences on Twiggs Money Flow (13-week) and 63-day Twiggs Momentum warn of selling pressure.

German DAX

* Target calculation: 6300 + ( 6300 - 5700 ) = 6900

France: CAC-40

The CAC-40 is likewise consolidating below resistance at 3800. Breakout above 3800 would test the April high of 4050, while reversal below 3450 would signal another primary decline. Twiggs Money Flow (13-week) is rising but remains below the zero line, indicating long-term weakness.

France CAC-40

India: Sensex

The Sensex broke resistance at 20000, gapping to 20200 Monday, after a brief retracement. Further advances without a reasonable correction would indicate a self-reinforcing trend: rapid gains but ending in a blow-off and equally rapid reversal. Rising Twiggs Money Flow (13-week) high above zero signals strong buying pressure.

Sensex India

* Target calculation: 18000 + ( 18000 - 16000 ) = 20000

Singapore

The Straits Times Index is advancing towards its long-term target of 3350*. Expect retracement to test the new support level at 3000 in October. Twiggs Momentum (63-day) respecting the zero line signals an up-trend.

Singapore

* Target calculation: 3000 + ( 3000 - 2650 ) = 3350

Japan

The Nikkei 225 recovered above 9600 Monday, indicating a test of resistance at 10000. Bullish divergence on 13-week Twiggs Money Flow suggests a reversal, but the primary trend remains downward for the present.

Japan

South Korea

The Seoul Composite Index is advancing strongly after breaking short-term resistance at 1790. Rising Twiggs Money Flow (13-week) high above zero indicates strong buying pressure.

South Korea

* Target calculation: 1750 + ( 1750 - 1550 ) = 1950

China

The Shanghai Composite Index recovered above 2600 Monday, strengthening support. Bearish divergence on Twiggs Money Flow (13-week), however, continues to warn of selling pressure. Reversal below 2550 would signal another test of primary support at 2300. Breakout above 2700 is less likely, but would offer a target of 3100*.

Shanghai Composite Index China

* Target calculations: 2700 + ( 2700 - 2300 ) = 3100

The HangSeng Index broke resistance at 21800, confirming the primary up-trend. Rising Twiggs Money Flow (13-week) above the zero line indicates buying pressure.

Hang Seng Index Hongkong

* Target calculations: 21800 + ( 21800 - 20600 ) = 23000

Australia: ASX

The All Ordinaries respected support at 4650, indicating a primary advance to 5000*. Twiggs Money Flow (21-day) holding above zero signals buying pressure.

ASX All Ordinaries

* Target calculation: 4650 + ( 4650 - 4250 ) = 5050

The longer term outlook is bleaker, however, with a large bearish divergence on Twiggs Money Flow (13-week). ASX200 reversal below 4500 is unlikely at present, but would be a strong bear signal — as would Twiggs Money Flow reversal below zero. Expect retracement to test the new support level (4600) in October.

ASX 200


The financial system is broken. We can use that term in late 2008, and I think it's fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.

~ Former Fed Chairman Paul Volcker

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