NASDAQ bullish divergence
By Colin Twiggs
October 10th, 2011 5:00 a.m. ET (8:00 p.m. AET)
NASDAQ 100 index respected primary support at 2340 before rallying strongly on the weekly chart. Bullish divergence on 13-week Twiggs Money Flow indicates buying pressure. Breakout above 2340 would complete a double top. Reversal below 2000 is less likely, but would warn of a decline to 1700*. A word of caution: we are in a highly volatile market — do not act on signals without confirmation from other indexes.
* Target calculation: 2000 - ( 2300 - 2000 ) = 1700
I say this rather flippantly as we are in the middle of a bear market, and I do not believe we are ready, but a reader asked what it would take to signal a bull market. My answer: three decent blue candles on the weekly chart followed by a correction of at least two red candles that respects the preceding low. The weekly chart of the S&P 500 index displays a blue candle with a long tail, signaling buying support. That would qualify as candle #1.
* Target calculation: 1100 - ( 1250 - 1100 ) = 950
There is no supporting divergence on 13-week Twiggs Money Flow to signal a change in the underlying selling pressure. Reversal to an up-trend is unlikely but would take a rally of at least 3 blue candles to break resistance at 1250 followed by a correction that finishes above 1100 — and re-crosses 1250. What is more likely is a failed attempt or false break at 1250 followed by penetration of support at 1100, signaling a decline to 1000/950*.
The FTSE 100 index encountered resistance at 5400. Low volume indicates that buyers were scarce and another test of support at 5000 is likely. We are in a primary down-trend and failure of support would signal a decline to 4400*.
* Target calculation: 5000 - ( 5600 - 5000 ) = 4400
Germany's DAX is starting to rally on the weekly chart, with 13-week Twiggs Money Flow indicating medium-term buying pressure. Expect a test of 6000, but again we are in a primary down-trend, and another test of 5000 is likely. Failure of support would signal a decline to 4000*.
* Target calculation: 5000 - ( 6000 - 5000 ) = 4000
Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.
~ Jesse Livermore in Reminiscences of a Stock Operator by Edwin Lefevre.