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India slumps, will China follow?

By Colin Twiggs
January 31st, 2011 3:00 a.m. ET (7:00 p.m. AEDT)

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.


Indian markets signal the start of a primary down-trend. The Sensex broke support at 19000, while Twiggs Money Flow (13-week) crossed below zero, indicating strong selling pressure. Target for the initial decline is 17500*.

Sensex India

* Target calculation: 19000 - ( 20500 - 19000 ) = 17500

The S&P CNX Nifty Index confirmed the reversal with a similar break below 5750.

S&P Nifty

Global

Bearish divergence on Twiggs Money Flow (13-week) warns of a correction on the Dow Global index ($DJWO). Failure of short-term support at 256 would strengthen the signal. Breach of support at 236 remains unlikely, but would signal a primary reversal.

Dow Jones Global Index

* Target calculations: 242 + ( 242 - 204 ) = 280

USA

Dow Jones Industrial Average

The Dow retreated sharply, establishing resistance at 12000*. Breach of the rising trendline would warn that the trend is losing momentum. Rising Twiggs Money Flow (21-day) continues to reflect buying pressure. Reversal below 11000 remains unlikely but would signal a primary reversal.

Dow Jones Industrial Average

* Target calculation: 11000 + ( 11000 - 10000 ) = 12000

S&P 500

The S&P 500 broke short-term support at 1280, suggesting a correction. Penetration of the rising trendline would indicate that momentum is slowing, strengthening the bear signal. Reversal below 1180 remains unlikely, but would signal a primary reversal.

Standard & Poors 500 chart

* Target calculation: 1220 + ( 1220 - 1020 ) = 1420

Transport

Fedex reversed below medium-term support at 92.00, while penetration of the rising trendline and Twiggs Money Flow (21-day) reversal below zero also warn of a correction.

Dow Transport Index

Technology

A sharp fall on Twiggs Money Flow (13-week) suggests that the Nasdaq 100 may break its new support level at 2250. Bearish divergence on Twiggs Momentum also warns of a correction to test the rising trendline.

Nasdaq 100

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

Canada: TSX

Bearish divergence on Twiggs Momentum warns of a correction on the TSX Composite Index. Breach of its recent rising trendline suggests a test of the longer-term, green trendline. Recovery above 13600, however, would indicate another advance.

TSX Daily

* Target calculation: 13000 + ( 13000 - 12600 ) = 13400

United Kingdom

Twiggs Money Flow (13-week) fall below zero warns of a primary reversal on the FTSE 100 index. Failure of support at 5850 (and breach of the rising trendline) would signal a correction, while failure of primary support at 5500 would confirm the reversal. Respect of 5850 is most unlikely, but would indicate an advance to the 2007 high at 6750*.

FTSE 100 Daily

* Target calculation: 5800 + ( 5800 - 4800 ) = 6800

Germany

The DAX continues upward in a bearish ascending broadening wedge pattern; downward breakout would signal retracement to 6550. Bearish divergence on 13-week Twiggs Money Flow indicates medium-term selling pressure.

German DAX

France

The CAC-40 respected resistance at 4050, while bearish divergence on 13-week Twiggs Money Flow warns of a correction. Expect a test of the rising green trendline around 3750. Breakout above 4050 is now unlikely, but would offer a long-term target of 4750*.

France CAC-40

* Target calculation: 4050 + ( 4050 - 3350 ) = 4750

Singapore

Strong bearish divergence on Twiggs Money Flow (13-week) warns of a primary reversal on the DJ Singapore Index ($sgdow_us). Failure of support at 250 would strengthen the signal. Breach of support at 3120 on the Straits Times Index would confirm.

Singapore

* STI Target: 3100 - ( 3300 - 3100 ) = 2900

Japan

The Nikkei 225 is testing support at 10200. Twiggs Money Flow (13-week) reversal below zero warns of failure — and a test of primary support at 9000.

Japan

South Korea

The Seoul Composite Index is testing the new support level at its 2007 high of 2050. Twiggs Money Flow (13-week) troughs high above zero continue to reflect buying pressure. Respect of support would signal a fresh primary advance, while failure would test the rising green trendline.

South Korea

China

Last week I briefly touched on inflation in China, but was not fully aware of the extent of the problem. Figures from Peter Treadaway reveal that bank lending expanded by 60 percent over the last two years (2009 - 2010). By comparison, bank lending in an over-heated US economy grew by 22 percent in the two years leading up to the global financial crisis (2006 - 2007). Even if real GDP in China is growing at 10% per year, there is just too much money chasing too few assets. Enough to fuel a bubble of epic proportions — and take down the banking system when it bursts.

Inflation would have caused a massive surge in stock prices, but concern over the bubble has kept the DJ China Broad Index ranging between 280 and 380. Bearish divergence on Twiggs Money Flow (13-week) warns of continued selling pressure.

DJ China Broad Index

* Target calculation: 280 - ( 380 - 280 ) = 180

Twiggs Momentum holding below zero on the Shanghai Composite Index warns of further weakness.

Shanghai Composite Index

* Target calculations: 2800 - ( 3100 - 2900 ) = 2600

The Hang Seng Index also displays a bearish divergence on Twiggs Money Flow (13-week). Expect another test of primary support at 22600.

Hang Seng Index Hongkong

Brazil

The Bovespa Index broke support at 67000, signaling a primary reversal. Twiggs Money Flow (13-week) reversal below zero would confirm. The initial target is 62000*.

Brazil Bovespa

* Target calculation: 67000 + ( 72000 - 67000 ) = 62000

Australia: ASX

The All Ordinaries is testing support at 4800; a long tail and Twiggs Money Flow (21-day) high above zero indicate buying pressure. Failure of support is unlikely, but would signal a test of primary support at 4650. Recovery above 4900 would signal a test of 5000.

ASX All Ordinaries

* Target calculation: 4900 + ( 4900 - 4650 ) = 5150

Bearish divergence on Twiggs Momentum warns of a correction on the ASX 200; retreat below zero would confirm, while recovery above 4800 would negate the signal. In the longer term, failure of support at 4600 would signal a primary reversal, while breakout above 5000 would indicate a fresh primary advance.

ASX 200


Someone said, "What do you say concerning the principle that injury should be recompensed with kindness?" The Master said, "With what then will you recompense kindness? Recompense injury with justice, and recompense kindness with kindness.

~ The Analects of Confucius

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