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Trading Diary
October 23, 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 retreated in the morning but then rallied in the afternoon to close up 0.5% at 8494 on higher volume. A primary trend reversal will be signaled if the index rises above 9130.

The Nasdaq Composite Index gained 2.2% to close at 1320. The primary trend will reverse if there is a break above 1426.

The S&P 500 edged up 6 points to close at 896. The primary trend is down. The index will complete a double bottom reversal if it rises above 965.

The Chartcraft NYSE Bullish % Indicator has swung to a bull alert signal at 34% (October 21).

AOL Time Warner
The media giant is forced to restate earnings by $US 97 million over 2 years, because of overstatement of advertising revenue in its AOL division. (more)

New York: Spot gold was down 80 cents at $US 311.60.

ASX Australia
The All Ordinaries put in another strong day, closing up 26 points up at 2987 on higher 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. MACD shows a bullish divergence while Twiggs money signals accumulation.

Coates Hire [COA]
After presenting a favorable entry point at [e] COA rallied strongly before leveling off into a congestion pattern: either a top or a consolidation before a further rally. Twiggs money flow displays an impressive 12 months of accumulation, never once crossing below zero.

The daily chart shows a head and shoulders reversal pattern, with the head at [2] and shoulders at [1] and [3]. MACD displays weakness [-] after a bearish divergence. Price broke below the neckline at [4] before rallying back above at [5]. Is this a bear trap?

The equivolume chart shows healthy volume at the first shoulder [1] as expected. Instead of declining, volume at [2] is stronger, but followed by a closing price reversal at [3]. Price drops sharply at [4], on comparatively thin volume, before a brief rally at [5], again on stronger volume. Finally, volume at the breakout [6] is weak, confirming that the pattern is not to be trusted: In a healthy head and shoulders pattern, volume should decline on each successive rally and increase on each successive correction, ending with a sharp rise at the breakout.

The rally back to [7] was unable to overcome resistance at 2.20 and we can expect the stock to range further before giving a clear signal.

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:

Stan's 9th Commandment:
Don't guess a bottom. What looks like a bargain can turn out to be a very expensive stage 4 disaster.
Instead, buy on breakouts above resistance

Stan Weinstein, Secrets for Profiting in Bull and Bear Markets.

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