Dollar Rally, Stocks Retreat
By Colin Twiggs
November 18, 2010 2:00 a.m. ET (6:00 p:m AEDT)
The dollar rallied while stocks declined in the last week, suggesting that fears of inflation are subsiding. Major stock indices have retreated sharply since a rash of breakouts signaled the start of a fresh primary advance. The Dow Jones Global index reversed below its April high of 242, but found short-term support at 238. Divergence on Twiggs Money Flow (21-day) warns of a correction/consolidation. Failure of support at 238 would confirm the correction.
The US Dollar Index broke through resistance at 78.5 and is headed for a test of 80. Reversal below 76 remains likely, however, and would offer a medium-term target of 72*. Respect of the zero line by Twiggs Momentum (21-day) would signal continuation of the primary down-trend.
* Target calculation: 76 - ( 80 - 76 ) = 72
Bearish divergence on Twiggs Momentum (21-day) and penetration of the rising trendline both warn of a correction. Penetration of support at $1320 would confirm — while recovery above $1380 would indicate an advance to 1500*.
* Target calculation: 1420 + ( 1420 - 1340 ) = 1520
Silver respected the first line of support at $25, displaying stronger momentum than gold. Failure of support would warn of a correction, while respect would signal an advance to 31*.
* Target calculation: 28 + ( 28 - 25 ) = 31
Nymex WTI Crude retreated to short-term support at $80 per barrel. Failure would signal a test of $70. Respect is unlikely, but would indicate another test of $88. A Twiggs Momentum (21-day) trough above the zero line would confirm the up-trend.
* Target calculation: 87 + ( 87 - 67 ) = 107
The euro broke support at $1.37, confirming the correction indicated earlier by divergence on Twiggs Momentum (21-day). Expect a test of support at $1.33. Recovery above $1.37 is unlikely, but would warn of a bear trap.
* Target calculation: 1.41 + ( 1.41 - 1.33 ) = 1.49
The pound sterling retreated below its new support level at $1.60. Bearish divergence on Twiggs Momentum (21-day) warns of a correction. Reversal below $1.57 would confirm. Recovery above $1.60 is unlikely, but would warn of a bear trap — and an advance to $1.66*.
* Target calculation: 1.60 + ( 1.60 - 1.54 ) = 1.66
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The dollar is consolidating after breaking resistance at ¥83. Follow-through would signal a test of ¥86, but failure of the new support level would signal another test of ¥80.
* Target calculations: 80 - ( 83 - 80 ) = 77
The Aussie dollar found support at $0.97 after falling sharply below $1.00. Expect another test of parity, but failure to break through would warn of a correction. Bearish divergence on Twiggs Momentum (21-day) also indicates a correction. The primary trend remains upward, however, and recovery above $1.00 would signal another advance.
* Target calculation: 1.02 + ( 1.02 - 1.00 ) = 1.04
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~ J. M. Straczynski