Uncertainty As Asia Retreats
By Colin Twiggs
September 13, 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 or trading advice. To understand my approach, please read About The Trading Diary. Full terms and conditions can be found at Terms of Use.
Transport stocks are strengthening as crude oil prices test the key support level of $100 per barrel. Their is no relief, however, with rising uncertainty in financial markets. Lehman's (LEH) search for a buyer is becoming increasingly desparate. And escalating credit default swap rates on America International Group (AIG) and Merrill Lynch (MER) warn of trouble ahead (Bloomberg). US and European markets signal uncertainty, while Asian markets lead the decline: China is hemorrhaging and the Nikkei threatens to follow.
USA
Dow Jones Industrial Average
The Dow continues to consolidate between 11000 and 11800. Long tails and higher volume indicate support at 11000, but Friday's hanging man signals selling pressure. Expect another test of 11000.
Long Term: Failure of support at 11000 would test the band of support between 10000 and 9700. Twiggs Money Flow (21-day) reversal below recent lows would confirm.
S&P 500
The S&P 500 is testing the band of support between 1200 and 1215. Failure would warn of another primary down-swing — to test support between 1100 and 1060. Twiggs Money Flow (21-day) reversal below recent lows (-0.025) would confirm the bear signal. Recovery above 1300, while unlikely, would warn that the down-trend is weakening.
Transport
Fedex and UPS have swung to primary up-trends in response to lower fuel prices, but the overall Dow Transport Average shows similar hesitancy to the Industrial Average — as consumer spending slows.
Small Caps
The Russell 2000 Small Caps index formed a large triangle, but the index continues to out-perform the large cap Russell 1000, with the price ratio rising. Small cap stocks have been less affected by the credit crunch than large caps, especially in the financial sector.
Technology
The Nasdaq 100 is testing the new resistance level at 1800. Twiggs Money Flow declining below zero warns of selling pressure — and the index is expected to make another test of primary support at 1700/1670. Failure would offer a target of 1400, calculated as 1700 - ( 2000 - 1700 ).
Canada: TSX
The TSX Composite broke through primary support at 12700, but retraced to test resistance at 13000 — after finding support at the January low of 12000. Twiggs Money Flow (21-day) reversal below zero would warn that the secondary rally is over. Failure of support at 12000 would signal test of the June 2006 low of 11000, but the long-term target is 10000, calculated as 12500 - (15000 - 12500).
United Kingdom: FTSE
The FTSE 100 made a false break below support at 5300 in the bearish right-angled broadening wedge formation. Expect a test of the upper border. But we remain in a long-term bear market — and reversal below 5300 is likely to signal another primary down-swing. The next target of 4800, the low of April 2005, would be confirmed if the index falls below 5100.
Europe
The Dow Jones Stoxx 50 made a similar false break below 2800, but the long-term trend remains down — and failure of support would offer a target of 2500. The calculation for both medium and long term gives the same result:
- medium term: 2700 - ( 2900 - 2700 ) = 2500; and
- long term: 2900 - ( 3300 - 2900 ) = 2500.
India: Sensex
The Sensex is testing support at 14000. Failure would complete a head and shoulders pattern with a target of 12500, calculated as 14000 - ( 15500 - 14000 ). Declining Twiggs Money Flow (21-day) warns of selling pressure, favoring a downward breakout.
Japan: Nikkei
The Nikkei 225 is testing primary support at 12000/11800. Failure would offer a target of 10000, calculated as 12000 - (14000 - 12000). Twiggs Money Flow (below zero and declining) warns of rising selling pressure, increasing the likelihood that primary support will fail.
China
The Hang Seng has a long-term target of 16000, calculated as 21000 - ( 26000 - 21000 ). Twiggs Money Flow holding below zero confirms selling pressure. Expect some support at 19000, the March 2007 low, and possibly (medium-term) retracement to test the new resistance level at 21000.
The Shanghai Composite is headed for the medium-term target of 2000; we can expect support at this level. Twiggs Money Flow (21-day) falling below recent lows signals rising selling pressure. The index warns of a sharp down-turn in the Chinese economy — that is likely to affect commodity-driven markets like Australia.
Australia: ASX
The All Ordinaries made a failed break below support at 4900, indicating uncertainty. Expect further consolidation between 4900 and 5200.
Long Term: We are in a bear market and support at 4900 is unlikely to hold. Failure would offer a target of 4300, the October 2005 low. Twiggs Money Flow (21-day) broke the rising trendline and dipped briefly below zero; further falls below zero would strengthen the bear signal.
Watch for an ASX 200 break below 4800 — which would confirm an All Ordinaries bear signal.
He who is dissatisfied with things present and what is given by fortune is an ignorant man in life;
but he who bears them nobly and rationally and the things which proceed from them
is worthy of being considered a good man.
~
Epictetus