Shanghai Most Bullish

By Colin Twiggs
February 03, 4:30 a.m. ET (8:30 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.

Gold

Spot gold broke through $900, but is now encountering resistance at the October 2008 high of $930. Retracement that respects the new support level at $900 would signal that breakout is likely — and a test of $1000. Reversal below the rising trendline, on the other hand, would warn of a test of primary support at $700.

USA

Dow Jones Industrial Average

The Dow respected resistance at 8400, signaling selling pressure, and is now testing support at 7900/8000. Declining volume indicates that support is weakening. Failure would signal another test of the November low of 7500, while respect of suport would again test 8400. In the long term, breakout below 7500 would offer a target of 6000; calculated as 7500 - ( 9000 - 7500 ). Confirmed if the 2002 low of 7300 is penetrated.

S&P 500

The S&P 500 is similarly testing 800, but support appears stronger than the Dow, with Twiggs Money Flow (21-Day) holding above zero. Respect of 800 would indicate another test of resistance at 950. Failure of support at 750, on the other hand, would offer a conservative target of 600; calculated as 750 - ( 900 - 750 ).

Transport

Fedex and the Dow Transport index continue in a strong primary down-trend, signaling further weakness in the economy.

Canada: TSX

The TSX Composite is consolidating, short term, in a narrow band between 9000 and 8500. This signals short-term selling pressure, but Twiggs Money Flow (21-Day) holding above zero indicates buying pressure. Downward breakout would test support at 7700/8000, while upward breakout would signal another test of 9500. In the long term, the primary trend is down and reversal below 8000 would offer a target of 6500; calculated as 8000 - (9500 - 8000).

United Kingdom: FTSE

The FTSE 100 is in a similar position, testing support at 4000. Failure would reach primary support at 3800, while respect would signal another test of 4600. In the long term, the primary trend is down and reversal below 4000 would offer a target of 3000; calculated as 3800 - (4600 - 3800). Twiggs Money Flow (13-Week) turned down at the upper border of the trend channel, indicating selling pressure.

Europe: DAX

The DAX appears weaker than major US indexes, with Twiggs Money Flow (21-day) respecting the zero line from below, signaling selling pressure. Breakout below support at 4000 is likely, offering a target of 3000; calculated as 4000 - (5000 - 4000).

India: Sensex

The Sensex continues to test support at 8500, while Twiggs Money Flow (21-Day) below zero indicates selling pressure. The primary trend is down and breakout below 8500 would offer a target of the 2005 low of 6000; calculated as 8500 - ( 11000 - 8500 ).

Japan: Nikkei

The Nikkei 225 shows a similar pattern to the Dow: testing support at 7500, above primary support at 7000. Twiggs Money Flow respecting zero from below indicates selling pressure. Breakout below 7000 would offer a conservative target of 5000; calculated as 7000 - (9000 - 7000).

China

The Hang Seng index is testing support at 12500 [orange], while Twiggs Money Flow (13-week) in a downward trend channel signals selling pressure. Failure would indicate a test of 11000 [red]. In the long term, the primary trend is down and breakout below 11000 would offer a target of 8500, the 2003 low.

The Shanghai Composite, on the other hand, signals buying pressure, with Twiggs Money Flow (21-Day) holding above the zero line. Breakout above 2000 is likely and would test resistance at 2100. This is the most bullish of all indexes covered and breakout above 2100 would signal reversal to a primary up-trend, especially if accompanied by a strong rise on Twiggs Money Flow (13-Week). Reversal below 1800 is unlikely at present, but would suggest a target of 1500.

Australia: ASX

The All Ordinaries is testing 3500 with increased volume signaling stiff resistance. Breakout would test 3700, while respect would retreat to support at 3300.

Long Term: The primary trend is down. Twiggs Money Flow (13-Week) continues in a downward trend channel, but the shorter term 21-Day indicator indicates buying pressure. Failure of support at 3300 (the red support line) would offer a target of 2700, the 2003 low. Recovery above 3700 is unlikely in the present circumstances, but would indicate that the primary down-trend is weakening.

One of the common failings among honorable people is a failure to appreciate how thoroughly dishonorable some other people can be, and how dangerous it is to trust them.

~ Thomas Sowell