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Trading Diary
February 26, 2003

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 .




 
USA
The Dow formed an inside day, closing down 1.3% at 7806 on above-average volume. The next support level is 7500.
The primary trend is down.

The Nasdaq Composite closed down 1.9% at 1303. The next support level is at 1200.
The primary trend is up.

The S&P 500 also broke below congestion, closing 11 points down at 827. The next support level is at 768.
The primary trend is down.

The Chartcraft NYSE Bullish % Indicator dropped to 40% (February 25).


Iraq
The market is still unsettled by prospects of war with Iraq, with Turkey pulling out its oil tank trucks and Hans Blix saying that "Iraq could do more" to cooperate. (more)




Gold
New York (17.21): Spot gold is back up 300 cents at $US 354.40.



ASX Australia
The All Ordinaries closed up 24 points at 2804 on lower volume. Higher volume on the declines, [a] to [d], signal trend strength and the 2779 support level will be severely tested over the next few days.

Slow Stochastic (20,3,3) crossed to above its signal line; MACD (26,12,9) is below. Twiggs Money Flow still shows a small bullish divergence.





Catching a falling knife
 Bear markets generally have three stages:
  1. Abandonment of the hopes and expectations that sustained inflated prices.
  2. Prices decline in response to disappointing earnings.
  3. Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value.
We have certainly witnessed the first two stages over the past months, with one sector after another trending downwards. But how do we identify the third stage?
Distress selling is the same as a downward spike: wide daily falls and heavy volume, frequently accompanied by gaps. IAG displays a good example at [1] to [2] below.
Volume must be sufficient for control to pass from sellers, who bought at far higher prices, to buyers who have bought at low prices in expectation of making a gain, relieving selling pressure on the stock.





The downward spike is often followed by a sharp reversal [3], drawing in eager "bottom-feeders". V-shaped bottoms are prone to failure and most return [4] to test the lows established by the initial spike. Traders who trade off initial reversals need to work in short time frames and with tight stops - this can be hazardous to your capital.
 
Less experienced traders should stick to trading off broad bases, they are far more reliable.
Remember: The broader the base - the bigger the move.


Market strategy
For further guidance see Understanding the Trading Diary.

Short-term: Avoid new entries. Slow Stochastic and MACD are on opposite sides of their respective signal lines.
Medium-term: Avoid new entries.
Long-term: Wait for confirmation of the bottom reversal signal.

Colin Twiggs


Through the release of atomic energy, our generation has brought into the world
 the most revolutionary force since prehistoric man's discovery of fire.
 This basic force of the universe cannot be fitted into the outmoded concept
 of narrow nationalisms.

- Albert Einstein







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Colin Twiggs

Author: Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.

He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.