Trading Diary
September 10, 2005

USA

The short week has been good for the S&P 500, with strong blue candles on Tuesday [1] and Friday [4]. Narrow range and strong volume at [2] reveals selling into the trend, but this was overcome by buying pressure. Strong volume on Friday [4] signals further resistance and we may face consolidation or a reversal at the 1245 resistance level.

The primary trend is up, but we still have this tiresome rising wedge pattern: a downward breakout would warn of a primary trend reversal. Twiggs Money Flow (21-day) is not particularly strong, whipsawing around zero. Primary support is at 1140.

The Dow Industrial Average is edging slowly upward, having recovered to test resistance at 10700. Failure to breach that level would warn of a test of primary support at 10000. Twiggs Money Flow (21-day) is whipsawing around zero with no strong signal.

Expect strong resistance overhead at 11000 to 11500, and strong support at 10000. The most likely scenario is for the Dow to range between 10000 and 11000 for some time -- restraining advances on the S&P 500 and NASDAQ indices.

The Dow Jones Transportation Average is in a primary up-trend, but appears to be forming a top, having started a secondary correction below the previous high of 3900. Also reflected by the flat 100-day MA. Fedex broke through support to resume its' primary down-trend. If UPS, currently testing support, follows suit, then we could see the index dragged downwards.

The Nasdaq Composite is stronger than the S&P 500 and Dow at present, having respected support at 2100 with a space between the trough and the previous peak (see Blind Freddy Trends). The crucial question is: does the index have sufficient strength to break out above the bearish rising wedge pattern. Twiggs Money Flow (21-day) is whipsawing around zero and does not show sufficient strength for a breakout. 

Though unlikely at present, a close below lower border of the bearish rising wedge pattern, or primary support at 1900, would signal the start of a primary down-trend.

Treasury yields

Long-bond yields respected support at 4.0% before recovering slightly. The long-term scenario looks weak, however, with lower peaks forming a large descending triangle. The yield differential (10-year T-notes minus 13-week T-bills) is below 1%, squeezing bank margins. A flat yield curve is detrimental to the profitability of banks (who pay mostly short-term rates to depositors while charging long-term rates to borrowers) and a long-term bear signal for the entire equity market.

Gold

New York: Spot gold is testing resistance at $450, closing at $448.50 on Friday. The metal is in a clear up-trend but must overcome a strong band of resistance between $450 and $454 (from the December 2004 high) before it can achieve lift-off.

United Kingdom

The FTSE 100 made some gains since last week but on very light volume, evident at [1] and [5]. This indicates a lack of enthusiasm from buyers and we may see further consolidation below resistance at 5380. Twiggs Money Flow (21-day) paints a similar picture, having remaining below zero since mid-August, to signal distribution.

A close above 5380, on the other hand, would negate this.

The primary trend is upward, with overhead resistance at 5400 and heavy resistance expected at 6000 to 6800.

Japan

The Nikkei 225 is in a strong up-trend, with Twiggs Money Flow (21-day) forming 3 successive troughs above the signal line to signal strong accumulation. However, resistance is now evident at 12700, with a red candle and strong volume at [2] and very high volume at [5]. We may see further consolidation, or a correction, before the primary trend resumes.

The long-term target for the breakout is 16400: 12000 + ( 12000 - 7600 [the April 2003 low]).

ASX Australia

The All Ordinaries is consolidating in a narrow range below resistance at the previous highs: a bullish sign. Monday's longish tail and high volume signal support, but strong volume on Wednesday [3] indicated a possible blow-off, confirmed by the following day's reversal. There have been three tall blue candles since the last tall red candle, a sign that the market is bullish at present. A view echoed by the long tail and low volume on Friday [5], signaling sellers' lack of interest. A close above 4460 would signal resumption of the up-trend.

It is taken some time for me to wake up to the strength of this bull market, but Twiggs Money Flow (21-day) has remained well above zero, signaling strong accumulation. The conventional target for the rally is 4600: 4250 [B] + (4250 - 3900 [C]). A more aggressive target would be 5000, calculated by projecting the previous up-swing from its' peak: 4250 [B] + (4250 - 3450 [A]) = 5050.

The All Ords does not function in isolation, however. Performance may be affected by major indexes, especially the S&P 500, which should be watched closely.