Trading Diary
March 18, 2006

USA

The S&P 500 broke through resistance at 1295 on Tuesday, confirming that the primary trend has resumed.  The long shadow at [4] signals profit-taking and we can expect a retracement to test the new support level. Increased volumes on Friday are attributable to triple-witching hour.

Medium Term: The rise above 1295/1300 signals a strong up-trend. Twiggs Money Flow (21-day) oscillating above zero signals accumulation.

Long Term: The index has broken out above a 2-year bearish rising wedge pattern, signaling a stronger primary up-trend. Look for confirmation from a retracement that respects the upper border of the wedge.

The Dow Industrial Average respected support at 11000 at [c] before rising sharply through short-term resistance at 11100 with a string of blue candles.

Medium Term: The rise above the previous high at 11150 confirms that the Dow has moved into a stronger primary up-trend. Twiggs Money Flow (21-day) respected the zero line at [d]: a bullish sign.

The Dow Jones Transportation Average and lead indicator Fedex are in strong primary up-trends. UPS is now in an intermediate up-trend and will resume a primary up-trend if it rises above its November high. All three indicators are positive and signal increasing economic activity.

The Nasdaq 100 again successfully tested support at [J], while the broader Nasdaq Composite is strengthening. A close below 1640 would complete a bearish head and shoulders, signaling a primary trend reversal, but a rise above 1700 would signal an intermediate up-trend. Twiggs Money Flow (21-day) whipsawing around zero shows uncertainty.

Treasury yields

Lower core CPI figures from the Labor Department have tamed inflation fears, though further rate hikes from the Fed remain likely. The 10-Year treasury yield is retracing to test the new support level at 4.60/4.65%. A successful test would confirm the breakout. 

Medium Term: A rise in long-term rates could have an adverse effect on the buoyant property market, but enhance the attraction of the dollar as an investment currency. In the end, this may be a better option than a negative yield curve -- the forerunner of most economic down-turns. 

Long Term: The yield differential (10-year T-notes minus 13-week T-bills) is again approaching zero. We are already witnessing declining bank margins and a negative yield differential would warn of a likely credit squeeze.

The Big Picture: Strong showings from the Dow, S&P 500, and transport indicators indicate that equity markets are gathering momentum. However, wage inflation, short-term interest rates, and the flat yield curve remain a worry and need to be monitored closely.

Gold

Spot gold is currently at $554.00, having successfully tested primary support at $535/$540. 

Medium Term: The bearish lower high at [A] has been somewhat neutralized by the successful test of support. A higher short-term retracement, would complete the recovery.

The Big Picture: Gold is consolidating between $540 and $575. A break outside this range would signal the future direction of the primary trend.

Crude Oil

Light Crude rose to $62.77/barrel. A Light Crude or Brent Crude fall below medium-term support at $58 would be bearish, while a drop below $55 would indicate a primary trend reversal -- and a strong bear signal for gold. A rise above $70/barrel, on the other hand, would be bullish.

Currencies

The dollar displays short-term weakness against major trading partners.

Medium Term: The euro is strengthening against the dollar, with a higher low at [E], and is now threatening to break above the previous high at [D]. Against the yen, the dollar made a false break above the recent triangle at [5] before reversing below at [6]; it now appears headed for a test of support at the low of [2].

The Big Picture: A rise above [D] would signal that the euro has commenced a primary up-trend against the dollar. A fall below [2] would signal that the yen has commenced a primary up-trend against the dollar.

United Kingdom

The FTSE 100 broke clear of resistance at 5900 on Monday, before encountering further resistance at 6000 -- signaled by long shadows at [2] and [5]. Expect a retracement to test support at 5900.

Medium Term: Twiggs Money Flow (21-day) is holding well above zero, signaling accumulation. A retracement that respects new support at 5900 would confirm the up-trend, while a close above 6000 would be another bullish sign..

The Big Picture: The FTSE 100 is in a strong primary up-trend.

Japan

The Nikkei 225 broke through short-term resistance at 16300 and, after a few days consolidation, appears headed for a test of 16500.

Medium Term: Twiggs Money Flow (21-day) is holding above the zero line, signaling accumulation. The index commenced an intermediate up-trend after a higher low at [F] followed by a higher high at [G], but gains are small and momentum weak.

The Big Picture: The Nikkei has established a solid base at 15200 and a rise above the high of [C] would signal resumption of the primary up-trend.

ASX Australia

The All Ordinaries exhibited a strong blue candle on Monday at [1], breaking through resistance at 4900. This was followed by profit-taking, with weak closes on days [2] and [3], before buyers took control on day [4]. Exceptional volume is due to the option close-out at mid-day Thursday -- in the third week of the last month of each quarter. The long shadow and weak close on Friday indicate further selling and we can expect a test of the new support level at 4900. A successful test, or a false break below support, will confirm the up-trend.

Medium Term: The index rose above 4900, continuing the primary up-trend. The target is 5050 (4900 + {4900 - 4750}), but expect some profit-taking at 5000. Twiggs Money Flow (21-day) is oscillating above zero: signaling accumulation.

The Big Picture: The strong primary up-trend continues.