Trading Diary
April 29, 2006
These extracts from my daily trading diary are for educational
purposes and should not be interpreted as investment advice. Full
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of Use.
USA
The S&P 500 continues to encounter stubborn resistance between 1310 and 1320, with tall shadows for the last three days and strong volume at [4]. A breakout above 1320 would signal continuation of the slow up-trend, while a fall below 1295 would signal weakness -- and a close below 1285 would confirm the start of a secondary correction.
The S&P 500 continues to encounter stubborn resistance between 1310 and 1320, with tall shadows for the last three days and strong volume at [4]. A breakout above 1320 would signal continuation of the slow up-trend, while a fall below 1295 would signal weakness -- and a close below 1285 would confirm the start of a secondary correction.
Medium Term: The index is edging slowly upwards in a
narrow band above the 2-year linear regression line (parallel
channel lines are fitted at 2 standard deviations around the
linear regression line). A close below the center line would
signal a secondary correction, testing support at the lower edge
of the channel, while a break above the upper channel would mean
that the trend is accelerating.
Twiggs Money Flow (21-day) has formed a higher low, signaling
early
accumulation, but remains close to zero.
Long Term: The index is in a slow primary up-trend, with support at 1180.
Long Term: The index is in a slow primary up-trend, with support at 1180.
The Dow Industrial Average broke through 11350, but tall
shadows and huge volume at [5] mark a massive 11.4% sell-off in
Microsoft, after disappointing earnings for the third quarter and
a negative profit outlook.
Medium Term: Twiggs Money Flow (21-day) is whipsawing around the zero line, signaling uncertainty. This suggests that another test of support at 11100 is likely.
Long Term: The primary up-trend continues. Dow Theory confirms a bull market with both Industrial and Transport Averages in primary up-trends.
Medium Term: Twiggs Money Flow (21-day) is whipsawing around the zero line, signaling uncertainty. This suggests that another test of support at 11100 is likely.
Long Term: The primary up-trend continues. Dow Theory confirms a bull market with both Industrial and Transport Averages in primary up-trends.
The Dow Jones Transportation Average and lead indicators,
Fedex and UPS, are all in primary up-trends. However,
Twiggs Money Flow (21-day) has dipped sharply towards zero,
signaling medium term
distribution. The three bullish
indicators remain a long-term positive for the economy.
The Nasdaq 100 continues to consolidate between 1630 and
1760. While the broader Nasdaq Composite briefly broke
above, it has now retreated to below its January high.
Twiggs Money Flow (21-day) has edged below zero, signaling
distribution -- so watch for a retracement to test the 1630
support level.
Treasury yields
The 10-year treasury yields continue their up-trend after respecting support at 5%.
Medium Term: Chairman Bernanke's testimony before Congress hinted at a pause in future rate hikes. This was supported by strong GDP figures from the Commerce Department, accompanied by indications that inflationary pressures are easing. Expect rates to be raised another quarter point to 5.0% at the next Fed meeting, followed by a pause while the Fed evaluates the effectiveness of recent measures.
Long Term: The yield differential (10-year T-notes minus 13-week T-bills), though low, is trending upwards. This allows the Fed more scope to increase interest rates should it become necessary.
The 10-year treasury yields continue their up-trend after respecting support at 5%.
Medium Term: Chairman Bernanke's testimony before Congress hinted at a pause in future rate hikes. This was supported by strong GDP figures from the Commerce Department, accompanied by indications that inflationary pressures are easing. Expect rates to be raised another quarter point to 5.0% at the next Fed meeting, followed by a pause while the Fed evaluates the effectiveness of recent measures.
Long Term: The yield differential (10-year T-notes minus 13-week T-bills), though low, is trending upwards. This allows the Fed more scope to increase interest rates should it become necessary.
Wright
Model: Developed recently by Fed economist Jonathan H
Wright, the model combines the yield differential and fed funds
rate to calculate the probability of recession. Looking ahead at
the next four quarters, the probability is reasonably low
at 23%.
The Big Picture: Transport indicators signal
increasing economic activity, while equity markets edge
cautiously upwards. Inflation and the interest rate outlook
remains tame. Long and short-term rates are rising, but are
unlikely to cause significant harm at the historically low
current levels. The Wright Model is positive, allaying fears of
an economic downturn, and we can expect a growing economy over
the next four quarters.
|
Gold
Spot gold climbed sharply to close at $651.60, accelerating into an upward spike.
Medium Term: An upward spike is identified by strong rallies and short retracements/consolidations lasting only a few days.
The Big Picture: Expect further gains if crude oil remains above $70/barrel.
Spot gold climbed sharply to close at $651.60, accelerating into an upward spike.
Medium Term: An upward spike is identified by strong rallies and short retracements/consolidations lasting only a few days.
The Big Picture: Expect further gains if crude oil remains above $70/barrel.
Crude Oil
Light Crude has pulled back to test the new $70 support level. A successful test would be a strong bull signal for gold and oil prices; as would a close above the recent high of $75/barrel. A close below $70 on the other hand would indicate a lack of commitment from buyers.
The gold-oil ratio is below 9, indicating that the gold price is low relative to oil. An up-turn below 10 normally signals a good buying opportunity.
Light Crude has pulled back to test the new $70 support level. A successful test would be a strong bull signal for gold and oil prices; as would a close above the recent high of $75/barrel. A close below $70 on the other hand would indicate a lack of commitment from buyers.
The gold-oil ratio is below 9, indicating that the gold price is low relative to oil. An up-turn below 10 normally signals a good buying opportunity.
Data Source: Global
Financial Data
Currencies
The dollar is weakening against major trading partners.
EUR/USD: The euro broke through resistance at [D] to commence a primary up-trend against the dollar; confirmed by the rise above 1.24 after a short pull-back. This also completes an inverted head and shoulders at [A] to [E].
The dollar is weakening against major trading partners.
EUR/USD: The euro broke through resistance at [D] to commence a primary up-trend against the dollar; confirmed by the rise above 1.24 after a short pull-back. This also completes an inverted head and shoulders at [A] to [E].
USD/JPY: The dollar broke out below its recent narrow band of
consolidation against the yen and is testing primary support at
[B]. A fall below support would signal reversal to a primary
down-trend.
Source: Netdania
United Kingdom
The FTSE 100 is headed for a test of 6000 after overcoming support at 6050 (indicated by a long tail and increased volume at [4]).
Medium Term: Twiggs Money Flow (21-day) fell sharply to end the week below zero, signaling distribution. A successful test of support at 6000 would be a positive sign, while a close below this level would signal the start of a secondary correction.
The Big Picture: The FTSE 100 continues in a strong primary up-trend.
The FTSE 100 is headed for a test of 6000 after overcoming support at 6050 (indicated by a long tail and increased volume at [4]).
Medium Term: Twiggs Money Flow (21-day) fell sharply to end the week below zero, signaling distribution. A successful test of support at 6000 would be a positive sign, while a close below this level would signal the start of a secondary correction.
The Big Picture: The FTSE 100 continues in a strong primary up-trend.
Japan
The Nikkei 225 retraced to test support at 16700/16800, but long tails at [2] and [5] confirm the presence of buyers.
Medium Term: Twiggs Money Flow (21-day) declined somewhat in recent weeks, but still holds above zero, signaling long term accumulation. A break above 17500 would signal a rally to test the target of 17900 (16700 + (16700 - 15500)), while a fall below 16700 would mean a secondary correction.
The Big Picture: The primary up-trend continues.
The Nikkei 225 retraced to test support at 16700/16800, but long tails at [2] and [5] confirm the presence of buyers.
Medium Term: Twiggs Money Flow (21-day) declined somewhat in recent weeks, but still holds above zero, signaling long term accumulation. A break above 17500 would signal a rally to test the target of 17900 (16700 + (16700 - 15500)), while a fall below 16700 would mean a secondary correction.
The Big Picture: The primary up-trend continues.
ASX Australia
The All Ordinaries is making marginal breaks above previous highs before retreating to test support. Wednesday [2] saw a break through resistance at 5250 only to encounter further selling; leading to another test of support at 5200. Resistance is evident from the strong volume at [2] and [3], and buying support from the exceptional volume at [4]. Frequent red candles over the past 3 weeks are another sign of increased resistance. If support at 5200 holds we are likely to see another test of resistance at 5280, the high of [2], and further consolidation. If support fails, however, that could signal the start of a secondary correction; confirmed if there is a fall below the April 13 low of 5120.
The All Ordinaries is making marginal breaks above previous highs before retreating to test support. Wednesday [2] saw a break through resistance at 5250 only to encounter further selling; leading to another test of support at 5200. Resistance is evident from the strong volume at [2] and [3], and buying support from the exceptional volume at [4]. Frequent red candles over the past 3 weeks are another sign of increased resistance. If support at 5200 holds we are likely to see another test of resistance at 5280, the high of [2], and further consolidation. If support fails, however, that could signal the start of a secondary correction; confirmed if there is a fall below the April 13 low of 5120.
Medium Term:
Twiggs Money Flow (21-day) is well above zero, signaling
long-term trend strength, but the recent
divergence demonstrates short-term weakness. The breakout
above the upper border of the linear regression channel signals
acceleration (especially as this is a log scale). Accelerating
trends make rapid gains, but often blow-off
into a sharp reversal, with the index retreating to the safety of
the previous base (either 4750 or 4300).
The Big Picture: The All Ordinaries continues in a strong
primary up-trend.
For further background information, read About
the Trading Diary.
Regards,
Regards,
Colin Twiggs
If your success is not on your own terms,
if it looks good to the world but does not feel good in your heart,
it is not success at all.
~ Anna Quindlen
if it looks good to the world but does not feel good in your heart,
it is not success at all.
~ Anna Quindlen
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.