The Big Picture

By Colin Twiggs
April 10, 2007 3:00 a.m. ET (5:00 p.m. AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment advice. Full terms and conditions can be found at Terms of Use.

Gold

Spot gold continues upwards in a long-term trend channel. Expect the metal to overcome resistance at $690 and test the upper border of the channel; the target is $750 ( 690 + [ 690 - 630 ] ). Though unlikely at this stage, a fall below support at $630 would signal reversal.

The latest fall in crude prices may weaken demand for gold.

Source: Netdania

Crude Oil

May Light Crude retreated below support at $64. The latest fall remains within the trend channel, but any further retracement will warn that the "V" bottom may be about to become a "W". A fall below $59 would confirm that the trend has reversed.

Currencies

The euro broke through the December 2006 high of $1.34 and is now consolidating above the new support level. Expect a test of the 2005 high of $1.37, while breakout above $1.37 would have a target of $1.57 (1.37 + [ 1.37 - 1.17 ]). Reversal below $1.29, though unlikely, would signal that the up-trend has reversed.

Source: Netdania

The dollar is strengthening against the yen, breakout above 119 indicating another test of resistance at 122. Failure of support at 114.00/115.00, on the other hand, would signal reversal to a down-trend.

Source: Netdania

The Australian dollar has a target of 92 (80 + [80 - 68]) from the breakout above a bullish ascending triangle on the weekly chart. The Aussie is rising sharply, but retracement to test the new support level should not be ruled out.

Source: Netdania

Treasury Yields

Ten-year treasury yields are rising, having respected the long-term (green) trendline. A rise above the recent peak of 4.90% would signal another test of 5.25% (for ten-year yields).

Short-term treasury yields are being held in a narrow band between 4.80 and 5.00% and the negative yield differential (10-year minus 13-week treasury yields) is recovering. Reversal above zero would not immediately signal that the market is recovering: the economy may lag interest rates by up to a year.

I have posted Aubie Baltin's excellent overview of the conundrum facing the Fed -- for those readers who would appreciate an in-depth view.

Dow Jones Industrial Average

Twiggs Money Flow continues to display a bearish divergence against the Dow Jones Industrial Average, started when the index broke above 12000 in November 2006. The danger has not yet passed: previous divergences, highlighted on the chart below, often occur several months prior to a correction.

Breakout above resistance at 12800 would be a healthy bull signal, while a fall below 12000 would warn of a strong secondary correction.

Wright Model

Probability of recession in the next four quarters remains at 46 per cent according to the Wright Model.

There is some evidence that the Wright model may understate probability of recession in a low interest rate environment (as at present).

This is what knowledge really is. It is finding out something for oneself with pain, with joy, with exultancy, with labor, and with all the ticking breathing moments of our lives, until it is ours as that only is ours which is rooted in the structure of our lives.

~ Thomas Wolfe (1900 - 1938)

To understand my approach, please read Technical Analysis & Predictions in About The Trading Diary.