Trading Diary
December 11, 2004

USA

The Dow Industrial Average is consolidating in a narrow band between 10600 and 10450.
Twiggs Money Flow (21-day) has so far held above zero, signaling accumulation.
A fall below 10450 is likely to test 10350. A fall through that level would test the major 10000 support level; as long as that holds we are still in a bull-trend. 

A breakout (not just a false break) above 10600 would signal that 11400 is likely to be tested. Though first expect a pull-back to test support at the breakout.
A fall below 10000 would be a (long-term) bear signal.

The Nasdaq Composite experienced strong resistance, with heavy volumes at 2150. A narrow consolidation below 2150, or a correction that respects support at 2050, would both be (long-term) bullish signs.

The primary trend is up and Twiggs Money Flow is well above its' signal line, signaling accumulation.

The S&P 500 is edging upwards in a narrow flag pattern. This consolidation pattern normally signals continuation of the up-trend, but we must consider the close proximity to the breakout above 1160 (and the fact that the Dow and Nasdaq are encountering resistance). We are likely to see another test of the 1160 support level, especially after last week's two dojis on strong volume at the upper border of the pattern. A successful test of support at 1160, or a breakout above the upper border of the flag pattern (not just a false break), would be a bull signal.

Twiggs Money Flow continues to signal strong accumulation.
The primary trend is up. With no major resistance levels overhead we can expect good (long-term) gains.

Treasury yields

The breakout above 4.25% failed to live up to expectations, retreating back below the new support level. We could see another test of support at 4.00%. Soft long-term yields indicate that there is no major outflow from the bond market (into equities).

The yield differential (10-year T-notes minus 13-week T-bills) has declined below 2.0%. A steep rise in short-term yields reflects recent rate hikes by the Fed. A differentials below 1.0% would be bearish.

Gold

New York: Spot gold failed to hold above $450 and has retreated to test support at $430, closing at $433.40. A successful test would be a bullish sign, signaling another attempt to break above $450.

ASX Australia

The All Ordinaries (and ASX 200) made only marginal gains before retreating to test support at 3900 (xjo: 3880). Strong volumes on Friday signal buying support but the weak close reveals committed sellers. The index is experiencing increased resistance as it approaches 4000. Marginal new highs and strong volumes on corrections will increase the likelihood of a major secondary correction.

Twiggs Money Flow still signals accumulation.
The primary up-trend is strong. The latest rally is steep and at some stage (perhaps 4000) increased profit-taking will force a correction.

The above chart shows the performance of the All Ords over the last 25 years. Each major rally has been followed by a correction,  from [1] to [6], back to test support at the previous highs. The only exception is at [0], October 1987, where the correction retraced only 75% of earlier gains. However, the XAO had just spiked from 800 to 2300: almost 200%. There is only a small chance of a rally of that magnitude; what is far more likely is that we will see a correction testing support at the 2002 high of 3450 (xjo: 3500).