Shanghai Threatens Double Top

By Colin Twiggs
August 10, 5:00 a.m. ET (7:00 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.

I will leave this as a reminder to us all over the next few weeks:

This is no blue sky rally. Enjoy it while it lasts. But bear in mind that it could end badly.
And keep your stops tight.

The Dow continues its primary advance with a target of 10000*, though Friday's weak close and Twiggs Money Flow (21-Day) leveling off both indicate increased resistance. Reversal below 9200 (and the trend channel) would warn of a secondary correction to test support at 9000; while follow-through above 9450 would signal an advance to the upper trend channel. In the longer term, failure of support at 8800, while unlikely, would warn of a bull trap.

* Target calculation: 9000 + ( 9000 - 8000 ) = 10000

S&P 500

The S&P 500 broke through resistance at 1000, signaling a primary advance with a target of the August 2008 high*. Rising Twiggs Money Flow (13-Week) confirms the up-trend. Reversal below 950 is unlikely, but would warn of a bull trap.

* Target calculation: 1000 + ( 1000 - 700 ) = 1300

Transport

UPS continues to lag behind the Dow Transport Average and bellwether stock Fedex. Recovery above its May high would signal a primary up-trend — a positive sign for the economy.

Technology

The Nasdaq 100 is consolidating in a narrow band above 1600. Declining Twiggs Money Flow (21-Day) warns of increased risk of retracement. Reversal below 1600 would signal a test of support at 1500, while breakout above 1640 would signal an advance to 1700*.

* Target calculation: 1600 + ( 1600 - 1500 ) = 1700

Canada: TSX

The TSX Composite continues its strong primary advance with a target of 11700*. Twiggs Money Flow (21-Day) holding above zero indicates long-term buying pressure. The current retracement is testing support at 10700/10800. Failure is unlikely, but would warn of a test of 10400; while respect would signal a further advance — confirmed if the index reverses above 11000. In the longer term, reversal below 10400 is unlikely, but would warn of a bull trap.

* Target calculation: 10700 + ( 10700 - 9700 ) = 11700

United Kingdom: FTSE

The FTSE 100 continues its primary advance with a target of 5000*. Rising Twiggs Money Flow (21-Day) indicates buying pressure. Follow-through above 4750 would signal a test of the upper trend channel. Breakout below the trend channel is not expected, but would warn of a secondary correction to test support at 4500. Failure of 4500 is unlikely, but would warn of a bull trap.

* Target calculation: 4500 + ( 4500 - 4000 ) = 5000

Europe: DAX

The DAX is consolidating between 5300 and 5500. Upward breakout would signal a swing to the upper trend channel, around 5700*. Twiggs Money Flow (21-Day) respecting the zero line indicates buying pressure. Reversal below 5150 is unlikely, but would warn of a bull trap.

* Target calculation: 5100 + ( 5100 - 4500 ) = 5700

India: Sensex

The Sensex retreated below 15500, indicating weakness. Penetration of 14800 would signal a bull trap and test of 13200; while reversal above 15500 would flag a primary advance with a target of 17500*. Declining Twiggs Money Flow (21-Day) indicates selling pressure — a fall below zero would be cause for concern.

* Target calculation: 15500 + ( 15500 - 13500 ) = 17500

Japan: Nikkei

The Nikkei 225 is consolidating between 10200 and 10500, a bullish sign. Rising Twiggs Money Flow (21-Day) indicates buying pressure. Expect breakout above 10500, signaling a primary advance with a target of 11000*. Reversal below 10000 is now unlikely, but would warn of a bull trap.

* Target calculation: 10000 + ( 10000 - 9000 ) = 11000

South Korea

The Seoul Composite Index continues its strong primary advance towards 1700*. Rising Twiggs Money Flow (21-day) confirms long-term buying pressure. Reversal below the new support level at 1450 is most unlikely, but would signal a bull trap.

* Target calculation: 1450 + ( 1450 - 1200 ) = 1700

China

The Shanghai Composite Index retreated from resistance at 3500 and is headed for another test of support at 3200. Failure of support would complete a double top with a target of 2900*. Twiggs Money Flow (21-Day), however, indicates long-term buying pressure. Reversal above 3500, on the other hand would offer a target of 3800*.

* Target calculations: 3200 - ( 3500 - 3200 ) = 2900 and 3500 + ( 3500 - 3200 ) = 3800

Declining Twiggs Money Flow (21-Day) on the Hang Seng warns of retracement to test the new support level at 19000 — after reaching its previous target of 21000*. Breakout below the rising trend channel would confirm. Reversal below 19000 is most unlikely, but would warn of a bull trap; while recovery above 21000 would signal a further advance.

* Target calculation: 19000 + ( 19000 - 17000 [red] ) = 21000

Resources Stocks

The CRB Commodities Index retraced to test the new support level at 266. Follow-through below 264 would test 255; while breakout above 269 would signal a primary advance with a target of 300* — a bullish sign for resources stocks. Failure of support at 255 is unlikely, but would confirm a bull trap and test of primary support at 200.

* Target calculation: 265 + ( 265 - 230 ) = 300

Australia: ASX

The All Ordinaries is consolidating in a narrow band just below its target of 4400*. The sharp fall in Twiggs Money Flow (21-Day) may be a false signal: a massive volume spike, attributable to one stock, GPT, is the subject of an outstanding query with the ASX. Breakout above 4350 would signal an advance to the upper trend channel while reversal below 4270 would warn of a secondary correction. Failure of support at 4000 is unlikely, but would indicate a bull trap.

* Target calculation: 4050 + ( 4050 - 3700 ) = 4400

The ASX 200 continues a strong primary advance with rising Twiggs Money Flow (13-Week) indicating buying pressure. Reversal below 4000 is unlikely, but would again warn of a bull trap.

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War is an instrument entirely inefficient toward redressing wrong; and multiplies, instead of indemnifying losses.

~ Thomas Jefferson (1743 - 1826)