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Double dip warning

By Colin Twiggs
June 18th, 2011 4:00 a.m. ET (6:00 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.


European markets have stood up remarkably well to the sovereign debt crisis in Greece, but contraction in Asia continues, with the Shanghai Composite reversing to a primary down-trend. The Hang Seng Index and Aussie indexes followed, joining resource-rich Brazil in a down-trend. Tech stocks lead the decline in the US — reflecting the flight to safety — with the Nasdaq 100 breaking primary support. The weight of evidence is now firmly in favor of a "double-dip".

Expect negative sentiment to drag other markets lower.

China

The Shanghai Composite Index broke through primary support at 2700 to indicate the start of a primary down-trend, confirming the signal from the Shenzhen Index. Reversal of Twiggs Money Flow (21-day) below zero indicates renewed selling pressure.

Shanghai Composite Index

* Target calculations: 2700 - ( 3050 - 2700 ) = 2350

The Hang Seng Index added further confirmation, breaking support at 22200 to signal a primary down-trend. Reversal of 21-day Twiggs Money Flow below zero indicates renewed selling pressure.

Hang Seng Index Hongkong

* Target calculation: 22500 - ( 24500 - 22500 ) = 20500

Global

The Dow Jones Global Index indicates selling pressure, with 21-day Twiggs Money Flow falling below zero. Failure of the band of primary support at 250 would warn of a (primary trend) reversal.

Dow Jones Global Index

USA

Technology

The Nasdaq 100 broke primary support at 2200 Friday, completing a double top reversal with a target of 2000*. Twiggs Money Flow (21-day) below zero again indicates selling pressure.

Nasdaq 100

* Target calculation: 2200 - ( 2400 - 2200 ) = 2000

Dow Jones Industrial Average

The Dow found short-term support at 11900 but expect a test of primary support at 11600 — and penetration of the long-term ascending trendline. Twiggs Money Flow (21-day) below zero again indicates selling pressure.

Dow Jones Industrial Average

* Target calculation: 12400 + ( 12400 - 11600 ) = 13200

S&P 500

The S&P 500 is similarly headed for a test of primary support at 1250. Breach of support would complete a double top with a target of 1150*. Reversal below zero by 21-day Twiggs Money Flow indicates selling pressure.

Standard & Poors 500 chart

* Target calculation: 1350 + ( 1350 - 1250 ) = 1450 or 1250 - ( 1350 - 1250 ) = 1150

Transport

Fedex continues to test primary support at 85; breach would confirm the bear signal from UPS. Confirmation would be a negative sign for the broader economy.

Dow Transport Index

Canada: TSX

The TSX Composite Index is already in a primary down-trend. The sharp fall below zero on 21-day Twiggs Money Flow signals strong selling pressure.

TSX Composite

* Target calculation: 13500 - ( 14200 - 13500 ) = 12800

United Kingdom

The FTSE 100 penetrated its ascending trendline, warning that the primary trend is weakening. Twiggs Money Flow (21-day) holding below zero indicates strong selling pressure. Breach of primary support at 5600 would offer a target of 5100*.

FTSE 100 Daily

* Target calculation: 6100 + ( 6100 - 5600 ) = 6600 or 5600 - ( 6100 - 5600 ) = 5100

Germany

The DAX continues to test medium-term support at 7000 (and the ascending trendline). Twiggs Money Flow (21-day) recovery above zero indicates short-term buying support, but the weight of global sentiment is likely to drag the index lower. Breach of 7000 would test primary support at 6500.

German DAX

* Target calculation: 7500 + ( 7500 - 6500 ) = 8500

France

The CAC-40 penetrated its ascending trendline, warning that the primary trend is weakening. Twiggs Money Flow (21-day), however, indicates short-term buying support. Again, bearish global sentiment is likely to drag the index lower. Breach of 3800 would test primary support at 3700.

France CAC-40

India

The Sensex is at medium-term support at 17800; breach would test primary support at 17500. The peak below zero [n] on 21-day Twiggs Money Flow warns of another down-swing.

Sensex India

Singapore

The Straits Times Index is falling sharply in response to China, headed for a test of primary support at 2920.

Singapore

Japan

The Nikkei 225 broke medium-term support at 9400, signaling a test of primary support between 8600 and 8800.

Japan

South Korea

The Seoul Composite Index broke medium-term support at 2040. Expect a test of primary support at 1920.

South Korea

* Target calculation: 2100 + ( 2100 - 1900 ) = 2300

Taiwan

The Dow Jones Taiwan Index is testing medium-term support at 205. China is likely to drag the index lower. Breach would test primary support at 196. Reversal below zero by 21-day Twiggs Money Flow warns of selling pressure.

Taiwan Index

* Target calculation: 220 + ( 220 - 195 ) = 245

Brazil: Bovespa

The Bovespa Index broke support at 62000, signaling a decline to 58000*. Twiggs Money Flow below zero reflects continued strong pressure.

Brazil Bovespa

* Target calculation: 64000 - ( 70000 - 64000 ) = 58000

South Africa: JSE

The JSE Overall Index is headed for a test of primary support at 30000. Breach of the ascending trendline warns that the primary up-trend is weakening. Twiggs Money Flow (21-day) reversal below zero confirms selling pressure.

JSE Overall Index

* Target calculation: 33000 + ( 33000 - 30000 ) = 36000

New Zealand: NZX

The NZ50 is headed for a test of medium-term support at 3430. The sharp fall of 21-day Twiggs Money Flow (21-day) warns of strong selling pressure.

NZX 50 Index

* Target calculation: 3425 + ( 3425 - 3300 ) = 3550

Australia: ASX

The All Ordinaries broke support at 4600, signaling reversal to a primary down-trend. Bearish sentiment overcame medium-term buying support, with 21-day Twiggs Money Flow dipping below zero. Target for the down-swing is 4200*.

ASX All Ordinaries

* Target calculation: 4600 - ( 5000 - 4600 ) = 4200

The ASX 200 reversed below 4500, confirming the All Ords signal. Twiggs Momentum deep below zero suggests a strong down-trend; a peak below the zero line would strengthen the signal.

ASX 200


A loss never troubles me after I take it. I forget it overnight. But being wrong — not taking the loss — that is what does the damage to the pocket book and to the soul.

~ Jesse Livermore in Reminiscences of a Stock Operator

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