Incredible Charts

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October 18, 2002
These extracts from my daily trading diary are intended to illustrate the techniques used in short-term trading and should not be interpreted as investment advice. Full terms and conditions can be found at Terms of Use .

The Dow has formed a continuation flag or pennant, closing up 0.5% at 8322 on above-average volume. A primary trend reversal will be signaled if the index rises above 9130.

The Nasdaq Composite Index gained more than 1% to close at 1287. The primary trend will reverse if there is a break above 1426.

The S&P 500 gained 5 points to close at 884, forming a continuation flag. The primary trend is down. The index will complete a double bottom reversal if it rises above 965.

The Chartcraft NYSE Bullish % Indicator reflects a bear confirmed signal at 26% (October 17).

Bonds down
Bond yields are rising sharply, with 10-year treasury notes up more than 0.5% from their 40-year low of 3.56% on October 9. (

New York: Spot gold was up slightly at $US 312.50.

ASX Australia
The All Ordinaries closed up 20 points at 2967 on strong volume. A break above 3150 will signal a primary trend reversal.
MACD (26,12,9) and Slow Stochastic (20,3,3) are above their signal lines. Twiggs money signals accumulation, after a bullish divergence.

Coles Myer [CML]
CML formed a U-shaped bottom, normally referred to as a rounded bottom or saucer pattern, after a stage 4 down-trend. One reader pointed out that the pattern resembles a cup and handle pattern - these tend to be unreliable if a stock is trending downwards. Relative strength (price ratio: xao) shows a slight improvement.

MACD displays a bullish divergence, while Twiggs money flow signals accumulation.

The equivolume chart shows strong support at 6.40 with accumulation at [3] and [4]. The latest rally [5] lacks conviction with low volume and a longer upper shadow signaling rejection of higher prices.

The chart pattern can be treated as an inverted head and shoulders, with the head at [2] and shoulders at [1] and [4]. The break above 6.55 penetrated the neckline at [5]. Strong volume is required to confirm the breakout and a rise above 6.70 will give added confirmation.

Sector Analysis
Changes are highlighted in bold.
  • Energy [XEJ] - stage 4 (RS is rising)
  • Materials [XMJ] - stage 4
  • Industrials [XNJ] - stage 4 (RS is falling)
  • Consumer Discretionary [XDJ] - stage 4
  • Consumer Staples [XSJ] - stage 1 (RS is rising)
  • Health Care [XHJ] - stage 4 (RS is falling)
  • Property Trusts [XPJ] - stage 2 (RS is rising)
  • Financial excl. Property Trusts [XXJ] - stage 4 (RS is falling)
  • Information Technology [XIJ] - stage 4 (RS is falling)
  • Telecom Services [XTJ] - stage 1 (RS is rising)
  • Utilities [XUJ] - stage 2 (RS is rising)

Sectors: Relative Strength
A stock screen of the ASX 200 using % Price Move (1 month: +5%) returned 25 stocks (compared to 99, August 23rd and 10 on October 4th).

Short-term: Long. The Slow Stochastic and MACD are above their respective signal lines.
Medium-term: Long. Use stop losses to protect yourself against a sudden reversal.
Long-term: Wait for confirmation of the bottom reversal signal.

Colin Twiggs

Thought for the Day:

If a speculator is correct half the time he is hitting a good average. Even being right three or four times out of ten
should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong.

 - Bernard Baruch

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