Transport Encouraging

By Colin Twiggs
April 5, 12:30 a.m. ET (4:30 p.m. AET)

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

USA

The Dow Transport Average reversed to an up-trend, but most of the major indices face resistance at their former primary support levels — and it is uncertain whether they will follow. We also need to be wary of a possible bull trap, given the continued weakness of the Shanghai Composite and Indian Sensex.

Dow Jones Industrial Average

Narrow consolidation over the last 3 days is a bullish sign, and light volume signals the absence of selling pressure. However, there may also be insufficient buying pressure to break resistance at 12800.

Long Term: The index shows a broad consolidation between 11750/12000 and 12800, while Twiggs Money Flow holding above zero indicates short-term buying pressure. Breakout above 12800 would signal reversal to a primary up-trend. A fall below support at 12000, however, would signal another primary decline — confirmed if support at 11750 is penetrated. The medium-term target would be 12000-(12800-12000)=11200.

S&P 500

The S&P 500 is similarly headed for a test of primary resistance at 1400. Twiggs Money Flow is not as strong as the Dow, whipsawing around zero in the short-term (signaling uncertainty), while long-term selling pressure remains. Breakout above 1400 would signal a primary trend reversal, while a fall below 1300 would offer a medium-term target of 1300-(1400-1300)=1200 — confirmed if support at 1270 is penetrated.

Small Caps

The Russell 2000 is testing the upper border of the trend channel. Breakout above 730, while not a primary trend reversal, would be a positive sign. The ratio against the Russell 1000 is also consolidating and breakout would indicate likely direction of the index.

Technology

The Nasdaq 100 broke through resistance at 1850, signaling a test of 2000. The primary down-trend is weakening. Rising Twiggs Money Flow indicates buying pressure. Reversal below 1850 remains a possibility and would test support at 1700.

Transport

The most positive sign, so far, for the general economy is the completion of a double bottom on the Fedex chart, signaling reversal to a primary up-trend. The Dow Jones Transportation Average has similarly completed an inverted head and shoulders formation, indicating a primary trend reversal.

United Kingdom: FTSE

The FTSE 100 is headed for another test of resistance at 6000/6100. Low volume indicates the absence of buyers and resistance is likely to hold. Twiggs Money Flow continues to signal uncertainty. Respect of resistance would mean another test of support at 5400. Breakout above 6000, on the other hand, would be a positive sign — though I would wait for retracement to confirm the new support level (because of previous false breaks).

India: Sensex

The Sensex respected resistance at 16500 and is now headed for a test of the lower trend channel. The target is 14000: the August 2007 low. Twiggs Money Flow holding below zero signals continued selling pressure.

Japan: Nikkei

The Nikkei 225 rallied to test the upper trend channel. Narrow consolidation or a further rally would signal that the primary-down-trend is weakening. Reversal (below say 12500) would warn of a test of the lower channel, but expect some support at 12000. Twiggs Money Flow rising steeply indicates buying pressure; the next retracement would confirm if it respects the zero line (from above).

China: Hang Seng & Shanghai

Exchanges were closed Friday for the Ching Ming Festival.

The Hang Seng index is testing the upper trend channel. Narrow consolidation or another rally would be a bullish sign, while recovery above 25000 would signal reversal to a primary up-trend. Rising Twiggs Money Flow indicates buying pressure. Reversal at the upper trend channel, however, would test the lower channel.

The Shanghai Composite hugging the lower trend channel reflects a strong down-trend. Twiggs Money Flow signals strong (long and short-term) selling pressure. The next target is 3000.

Australia: ASX

The All Ordinaries broke above short-term resistance at 5450 on heavy volume and is headed for a test of resistance at 5900/6000. Resistance is expected to hold because of the bear market, but continued advances on strong volume would increase the chance of a breakout.

Long Term: Further gains would indicate that the primary down-trend is weakening, while a rise above 6000 would signal an up-trend. Reversal below 5200, on the other hand, would warn of another primary decline, testing support at the June 2006 low of 4800. Rising Twiggs Money Flow signals buying pressure.

Resources flagship, BHP, show signs of accumulation on Twiggs Money Flow and is headed for another test of key resistance at $40.00.

One of the lessons of history is that nothing is often a good thing to do
and always a clever thing to say.

~ Will Durant

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