Trading Diary
March 19, 2005

USA

The up-trend on the Dow Industrial Average is not yet dead, with the index holding above support at 10600 on Friday. The massive volume spike is attributable to unusual volatility, caused by the coincidence of:

• triple-witching hour, with futures and options traders closing out their positions; and
• re-weighting of the S$P 500 index, with a negative affect on stocks like Wal-Mart.

Earlier in the week saw a brief test of resistance at [2] before a strong downswing threatened 10600. The strong close on Friday [5] indicates that we can expect a rally to test resistance at 10850. A rise above Friday's high (not just a surge at the opening) would confirm this. 

A rise above 10850 would be a longer-term bull signal; while a fall below 10600 would indicate primary trend weakness. A break below the January low of 10368 would signal that the trend has reversed.

The primary up-trend is likely to encounter heavy resistance between 11000 and 11650 (the previous high). 
Twiggs Money Flow (100-day) is whipsawing around the signal line, showing uncertainty.

The Nasdaq Composite is testing support at 2000, the base of an 8-week consolidation between the support level and 2100. As long as the index holds above this level, the primary up-trend is intact. A fall below 2000 would signal that the trend has reversed and a test of 1750 is likely. If the primary trend on the NASDAQ reverses, other indices may follow.

Twiggs Money Flow continues to lurk below the zero line, indicating that sellers dominate the market.

Failure of support at 1160 would signal a primary trend reversal; while a rise above 1225 would be likely to test resistance at 1300; and a break through this level would see a test of the key resistance level at 1500.

Twiggs Money Flow (21-day) completed another bullish trough at [3], signaling accumulation.

Treasury yields

The Federal Reserve meets on March 22nd and rates are almost certain to rise by another quarter per cent. More significant will be whether the Fed drops the word "measured" from its outlook on future rates rises, introducing increased uncertainty.

The yield on 10-year treasury notes is consolidating around 4.50%.
The yield differential (10-year T-notes minus 13-week T-bills) has recovered to above 1.7%. A positive sign. Yield differentials below 1.0% are a long-term bear signal for equity markets.

Gold

New York: Spot gold has retraced to test initial support in the intermediate up-trend, closing at $438.80 on Friday.
If price respects this level, that would be a bullish sign. Failure would signal a re-test of the more significant $430 support level and a slowing of the up-trend.

ASX Australia

The All Ordinaries respected initial support at 4180, rallying above 4200 (the high from the previous Friday) on Monday [1], albeit on light volume. This signals that the bull run is likely to continue. Tuesday, Wednesday and Thursday encountered stubborn resistance at the early March high of 4230, with strong volume at [3] and [4] before Friday's breakout. Expect an intermediate rally of around 50 points (4230 - 4180).

A reversal below 4230 (other than just a surge at the opening) would signal that momentum is slowing; while a fall below 4180 would signal trend weakness and a likely test of support at 4080.

The primary trend is strong, with little/no overlap between troughs and previous peaks since August last year. A fall below 4080 would signal that the primary trend has reversed.

Twiggs Money Flow (100-day) continues to signal weakness, with increased selling into recent rallies. Expect momentum to slow and some form of consolidation or correction.

Weekly reminder:
At some point there is likely to be a correction back to 3450. This is based on observation of the All Ords over the past 25 years, where the index has regularly cut back to test support at previous highs during an up-trend. This as a reminder not to get carried away with the bull market and to stay alert for signs of a reversal.