Trading Diary
March 3, 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 eased 0.7% to close at 7837 on lower volume, showing uncertainty. The next support level is 7500.
The primary trend is down.

The Nasdaq Composite formed a key reversal, closing down 1.3% at 1320. The equal highs (on 21/2 and 3/3) signal that the index is likely to weaken. The next support level is at 1200.
The primary trend is up.

The S&P 500 lost 7 points to close at 834. The index also displays equal highs, signaling weakness. The next support level is at 768.
The primary trend is down.

The Chartcraft NYSE Bullish % Indicator is at 40% (February 28).

Manufacturing weaker
The Institute of Supply Management's manufacturing index fell to a lower than expected 50.5, from 53.9 in January. (more)

ASX Australia

The All Ordinaries rallied to close up 14 points at 2792. Very low volume confirms that selling pressure is strong - the index threatens to break below support and continue the down-trend.

Slow Stochastic (20,3,3) and MACD (26,12,9) are below their signal lines, but both are threatening to cross. Twiggs Money Flow still shows a small bullish divergence.

Gradipore [GDP]
This biotech stock was the subject of recent discussion on the Chart Forum.
After the up-trend accelerated into a spike in early 2000, GDP formed a congestion pattern in the form of a triangle before commencing a stage 4 down-trend. The 100-day Twiggs Money Flow had shown bullish divergences for some time, before price broke above the downward trend line in January 2003 and rose above the 150-day exponential moving average.

GDP had formed a descending wedge before the January breakout. MACD and 21-day Twiggs Money Flow showed bullish divergences and Relative Strength (price ratio: xao) started to rise. This is a classic V-bottom and, as mentioned a few days ago, they often fail: the base isn't broad enough to support the rally.

Equivolume shows the double bottom reversal at [0] and [1], with a false break at [1].
This was followed by a power box at [2], breaking above resistance.
But a sharp retreat at [3] signaled nervousness.
Volume dried up markedly at [4], signaling a short-term buying opportunity.
GDP then gapped up at [5]. Gaps often exhaust short-term momentum, especially when accompanied by heavy volume, and lead to a consolidation as at [6].
The pattern repeats itself, with volume drying up on the correction, followed by a gap up on heavy volume, at [8] and again at [10].

The trend then rolls over after a surge in volume, with weaker closes at [11] and [12] followed by a sell-off on heavy volume at [13].
Price gaps down at [14], which exhausts the downward momentum, but volume dries up on the counter-trend.

GDP has lost upward momentum and strong selling pressure makes it likely that the stock will re-test support at the December lows.

Market strategy
For further guidance see Understanding the Trading Diary.

Short-term: Short if the All Ords falls below 2780. Slow Stochastic and MACD are below their respective signal lines.

Medium-term: Avoid new entries.

Long-term: Wait for confirmation of the bottom reversal signal.

Colin Twiggs

Do you have the patience to wait
till the mud settles and the water is clear?
Can you remain unmoving
till the right action arises by itself?

- Lao Tse.

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