US markets show promise of recovery

By Colin Twiggs
December 5th, 2011 4:30 a.m. ET (8:30 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.

We are not out of the woods yet, but the S&P 500 weekly chart is starting to diverge from its mid-2008 pattern. Headed for a test of the descending trendline and resistance at 1300, an index breakout would signal a primary advance to 1450* and the end of the bear market. Recovery of 63-day Twiggs Momentum above zero would support this.

S&P 500 Index

* Target calculation: 1300 + ( 1300 - 1150 ) = 1450

Dow Jones Industrial Average, however, displays short-term resistance between 12000 and 12300 on the daily chart. Reversal of 21-day Twiggs Money Flow below zero would warn of rising selling pressure.

Dow Jones Industrial Average

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

Nasdaq 100 Index is headed for resistance at 2400. Upward breakout would offer a target of 2750*. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure, but breakout above the descending trendline would negate this.

NASDAQ 100 Index

* Target calculation: 2400 + ( 2400 - 2050 ) = 2750

Footsie and Euro Stoxx 50 shows signs of resurgence

The FTSE 100 index is headed for resistance at 5700. Breakout would signal an advance to the 2011 highs at 6100. Rising 13-week Twiggs Money Flow indicates buying pressure.

FTSE 100 Index

* Target calculation: 5700 + ( 5700 - 5200 ) = 6200

The Dow Jones Euro Stoxx 50 also shows signs of recovery, heading for a test of the descending trendline and resistance at 2500. Breakout would signal a primary advance to 2900* and the end of the bear market. Momentum is rising but remains a long way below the zero line. Respect of 2500 would be a bear signal not only for the euro-zone, but for the global economy.

Dow Jones Euro Stoxx 50

* Target calculation: 2500 + ( 2500 - 2100 ) = 2900

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

~ Ernest Hemingway

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