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Trading Diary
November 08, 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 is in the second day of a correction, falling 0.5% to 8537 on reassuringly lower volume. The primary trend will reverse if the index rises above 9130.

The Nasdaq Composite Index closed the upward gap from Monday, down 1.3% at 1359. The primary trend will reverse to up if the index breaks above 1426.

The S&P 500 lost 8 points to close at 894. The primary trend will complete a double bottom reversal if it rises above 965.

The Chartcraft NYSE Bullish % Indicator signals a bull alert at 40% (November 07).

UN: Iraq resolution
The UN Security Council unanimously approved a resolution demanding unfettered access for UN weapons inspectors. (more)

The fast-food chain warns that it will miss 2002 earnings forecasts and close 175 under-performing restaurants.(more)

New York: Spot gold is up 20 cents at $US 321.00.

ASX Australia
The All Ordinaries index lost a further 29 points to close at 2973 on higher volume, threatening a downward breakout from the bullish flag pattern. The primary trend will reverse if the index rises above 3150.
The Slow Stochastic (20,3,3) is below its signal line, MACD (26,12,9) is above, while Twiggs money flow has broken its trendline and signals distribution.

The big four banks have under-performed the market in the last month, after out-performing over the previous 2 years. Relative strength (price ratio: xao) is falling for three of the four, while two are in a stage 4 down-trend and the other two are in stage 3 tops.

Westpac Banking Corp [WBC] weekly chart displays declining relative strength and a stage 4 down-trend after completing a bearish descending triangle. The latest counter-trend has respected the lower border of the triangle signaling trend strength.

Commonwealth Bank [CBA], after a bearish divergence, gave a strong bear signal at [-] with Twiggs money flow failing to rally above the zero line. Price has now fallen below support at 28.00, a further bear signal. The primary trend is down (stage 4).

Australia & NZ Bank [ANZ] has held up best, forming a stage 3 top after a bearish MACD divergence. The descending triangle is bearish and a break below support at 16.80 would be a strong bear signal. A rise above 19.00 would be bullish.

After a bearish MACD divergence, NAB has formed a stage 3 top, shaping as a bearish descending triangle (after initially suggesting a head and shoulders pattern). Twiggs money flow signals distribution. A break below 30.87 will be a strong bear signal. A rise above 34.50 would be bullish.

Sector Analysis
Changes are highlighted in bold.
  • Energy [XEJ] - stage 4 (RS is level)
  • Materials [XMJ] - stage 1 (RS is rising)
  • Industrials [XNJ] - stage 4 (RS is falling)
  • Consumer Discretionary [XDJ] - stage 1 (RS is rising)
  • Consumer Staples [XSJ] - stage 1 (RS is level)
  • Health Care [XHJ] - stage 4 (RS is falling)
  • Property Trusts [XPJ] - stage 3 (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 49 stocks (compared to 99, August 23rd and 10 on October 4th). Notable sectors are:
  • Diversified Metals & Mining
  • Health Care
  • Highways and Rail Tracks
  • Banks? and Diversified Financial Services

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

Colin Twiggs

Wisdom, in short, whose lessons have been represented as so hard to learn
by those who were never at her school, teaches us only to extend a simple maxim
universally known and followed even in the lowest life,
 a little farther than that life carries it.
And this is not to buy at too dear a price.

Now, whoever takes this maxim abroad with him into the grand market of the world,
and constantly applies it to honors, to riches, to pleasures,
and to every other commodity which that market affords,
 is, I will venture to affirm, a wise man;
 and must be so acknowledged in the worldly sense of the word:
 for he makes the best of bargains,
 since in reality he purchases everything at the price of a little trouble,
and carries home all the goods I have mentioned,
 while he keeps his health, his innocence and his reputation,
the common prices which are paid for them by others,
 entire and to himself.

- Henry Fielding: Tom Jones (1749).


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