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Trading Diary
May 22, 2004
These extracts from my daily trading diary
are for educational purposes
and should not be interpreted as investment
advice. Full terms and conditions can be found at Terms
of Use.
USA
The Dow Industrial Average is consolidating below 10000,
after slipping below the key support level at [a]. This is a
strong bear signal. Declining volume and weak closes on attempted
rallies, at [b] and [c], add further confirmation.
A downward breakout from the current consolidation would be
likely to test support at 9000.
Twiggs Money Flow is bearish.
Twiggs Money Flow is bearish.
The Nasdaq Composite penetrated the key 1900 support
level, giving a sell signal.
The index rallied Friday, to 1912, but on low volume.
Twiggs Money Flow displays a strong bear signal.
Twiggs Money Flow displays a strong bear signal.
The S&P 500 is consolidating around support at 1090.
Low volume and weak closes on attempted rallies are bearish. A
clear break below the consolidation pattern would signal a test
of support at 1000 to 960.
The primary trend is still up, despite the current secondary
correction.
Twiggs Money Flow shows a strong bear signal.
Twiggs Money Flow shows a strong bear signal.
NYSE Bullish Percent Index
The Chartcraft Bullish Percent Index is on Bear Alert status, having eased to 59.13%.
The Chartcraft Bullish Percent Index is on Bear Alert status, having eased to 59.13%.
Treasury yields
The yield on 10-year treasury notes retraced to 4.764%. A correction that respects support at 4.50% will confirm the strong primary up-trend.
The yield differential (10-year T-notes minus 13-week T-bills) at 3.8% reflects expectations that rates will increase soon.
The yield on 10-year treasury notes retraced to 4.764%. A correction that respects support at 4.50% will confirm the strong primary up-trend.
The yield differential (10-year T-notes minus 13-week T-bills) at 3.8% reflects expectations that rates will increase soon.
Gold
New York: Spot gold recovered slightly to $384.30. Expect the retracement to test resistance at $390.
The primary trend continues downwards.
New York: Spot gold recovered slightly to $384.30. Expect the retracement to test resistance at $390.
The primary trend continues downwards.
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ASX Australia
The All Ordinaries failed to break
through the first level of support at 3350, rallying on higher
volume at [b] to test resistance at the previous high of [a]. The
index then broke above 3390 at [c], completing a short-term
double bottom reversal. The pattern signal reversal of the
intermediate down-trend, but declining volume indicates
weakness.
Reversal below 3390 on Monday will signal another test of support at 3350.
Reversal below 3390 on Monday will signal another test of support at 3350.
If the current secondary correction holds above
3250, it will signal a healthy primary up-trend.
A fall below support at 3150 would signal reversal.
Twiggs Money Flow continues to display a bearish divergence, signaling long-term weakness.
A fall below support at 3150 would signal reversal.
Twiggs Money Flow continues to display a bearish divergence, signaling long-term weakness.
Point & Figure Charts - High/Low,
Closing or Typical Price?
There is a detailed explanation of the three pricing methods at Point and Figure Construction, but here is a brief summary:
There is a detailed explanation of the three pricing methods at Point and Figure Construction, but here is a brief summary:
- The High/Low method plots highs in an up-trend and lows in a down-trend;
- Closing Price method plots only changes in closing price;
- Typical Price calculates the average of High, Low and Closing Price.
High/Low method
The High/Low method attempts to approximate the early DeVilliers method of point and figure charting which used intra-day data. With highs in an up-trend, and lows in a down-trend, the method is more responsive to trend changes. It is suited to short-term point and figure charts: there are too many false signals for long-term charting.
Compare the High/Low and Closing Price methods with Yahoo Inc [YHOO]:
The High/Low method attempts to approximate the early DeVilliers method of point and figure charting which used intra-day data. With highs in an up-trend, and lows in a down-trend, the method is more responsive to trend changes. It is suited to short-term point and figure charts: there are too many false signals for long-term charting.
Compare the High/Low and Closing Price methods with Yahoo Inc [YHOO]:
The biggest difference is at [s2]: the High/Low sell signal at $27.80, compared to $26.60
with the Closing Price method
(below).
Generally, High/Low signals are earlier.
Generally, High/Low signals are earlier.
| Buy/Sell Signals | |
| Buy [b]: | When a column of Xs rises above the preceding column of Xs |
| Sell [s]: | When a column of Os falls below the preceding column of Os |
Closing Price method
Closing price is more suited to longer-term charts; eliminating false signals caused by intra-day fluctuations.
This time we take a 5-year chart of Yahoo Inc [YHOO], with a box size of 5 and reversal of 3, and zoom in on the top pattern at the end of 2002:
Closing price is more suited to longer-term charts; eliminating false signals caused by intra-day fluctuations.
This time we take a 5-year chart of Yahoo Inc [YHOO], with a box size of 5 and reversal of 3, and zoom in on the top pattern at the end of 2002:
You can see that Closing Price gives a clear sell signal at [s]
while the High/Low method (below) whipsaws in and out several
times between [s] and [s4].
Typical Price method
Typical price uses a single daily price calculated as (High + Low + Close)/3. This offers further smoothing, enabling us to use a smaller, more responsive box size. Although not widely used, the method offers clearer signals, when employed on long-term charts, than the more commonly accepted Closing Price method.
Typical price uses a single daily price calculated as (High + Low + Close)/3. This offers further smoothing, enabling us to use a smaller, more responsive box size. Although not widely used, the method offers clearer signals, when employed on long-term charts, than the more commonly accepted Closing Price method.
Compare the Typical Price chart (above) to the signals generated
by a Closing Price chart (below) with identical box size.
About
the Trading Diary has been expanded to offer further
assistance to readers, including directions on how to search the
archives.
Colin Twiggs
Six mistakes mankind keeps making century
after century:
Believing that personal gain is made by crushing others;
Worrying about things that cannot be changed or corrected;
Insisting that a thing is impossible because we cannot accomplish it;
Refusing to set aside trivial preferences;
Neglecting development and refinement of the mind;
Attempting to compel others to believe and live as we do.
- Marcus Tullius Cicero.
Believing that personal gain is made by crushing others;
Worrying about things that cannot be changed or corrected;
Insisting that a thing is impossible because we cannot accomplish it;
Refusing to set aside trivial preferences;
Neglecting development and refinement of the mind;
Attempting to compel others to believe and live as we do.
- Marcus Tullius Cicero.
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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.