Selling Pressure Continues

By Colin Twiggs
October 26, 2:00 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. Full terms and conditions can be found at Terms of Use.

The Dow shows signs of increased selling pressure, echoed in most major markets except China. Risk of a secondary correction remains high.

The Dow shows a bearish divergence on Twiggs Money Flow (21-day & 13-week), warning of a secondary correction. Consolidation around the key 10000 level is not particularly bearish, but reversal below 9900 would strengthen the warning. And failure of support at 9500 would confirm a secondary correction. Recovery above 10100 is unlikely, but would signal another primary advance. In the long term, breakout above 10000 would offer a target of 12000*; reversal below support at 8000 is unlikely, but would warn of a primary down-trend.

* Target calculation: 10000 + ( 10000 - 8000 ) = 12000

S&P 500

The S&P 500 is consolidating below resistance at 1100. Bearish divergences on Twiggs Money Flow (13-week & 21-day) warn of a correction. Reversal below support at 1020 would confirm. In the long-term, breakout above 1100 would signal a rally to test the upper channel around 1200*; failure of support at 900 is unlikely, but would warn of a primary down-trend.

* Target calculation: 1100 + ( 1100 - 1000 ) = 1200

Transport

The Dow Transport Average, together with UPS and Fedex, is headed for a test of primary support. Failure would signal reversal to a primary down-trend — a bearish sign for the economy.

Technology

The Nasdaq 100 broke through medium-term resistance at 1750, but is now retracing to test the new support level. Triple divergence on Twiggs Money Flow (21-day) increases the likelihood of reversal below 1730, warning of a secondary correction. Failure of support at 1650 would confirm. Recovery above 1780 is less likely, but would indicate a primary advance with a target of 1850*.

* Target calculation: 1750 + ( 1750 - 1650 ) = 1850

Canada: TSX

The TSX Composite shows a strong bullish divergence on Twiggs Money Flow (13-week & 21-day). Reversal below 10900/11000 would signal a secondary correction. Breakout above 11600 is unlikely, but would indicate another primary advance.

United Kingdom: FTSE

The FTSE 100 is testing the new support level at 5200. Bearish divergence on Twiggs Money Flow (21-day) warns of a secondary correction. Breakout below 5200 would strengthen the signal; failure of support at 5000 would confirm.

Germany: DAX

The DAX is testing the new support level at 5750. Bearish divergence on Twiggs Money Flow (21-day) warns of a secondary correction; failure of support at 5450/5500 would confirm.

India: Sensex

The Sensex respected resistance at 17500. Bearish divergence on Twiggs Money Flow (13-week) warns of a secondary correction; failure of support at 16500 would confirm. Breakout above 17500 is unlikely, but would offer a target of 20000*.

* Target calculation: 17500 + ( 17500 - 15000 ) = 20000

Japan: Nikkei

The Nikkei 225 is consolidating between 10200 and 10400. Rising Twiggs Money Flow (21-day) indicates renewed buying pressure. Upward breakout would indicate a primary advance with a target of 11600*. Reversal below 10000, however, would warn of another test of primary support at 9600. And failure of support would signal a primary down-trend.

* Target calculation: 10600 + ( 10600 - 9600 ) = 11600

South Korea

The Seoul Composite is undergoing a secondary correction, with triple divergence on Twiggs Money Flow (21-day) indicating strong selling pressure. Failure of support at 1600 would offer a target of 1500*.

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

China

The Shanghai Composite Index broke out above resistance at 3000/3050, signaling a new primary advance. But continued divergence on Twiggs Money Flow (21-day) indicates hesitancy. In the long term, primary advance would offer a target of 4300*, while failure of support at 2650/2700 would signal a primary down-trend.

* Target calculations: 3500 + ( 3500 - 2700 ) = 4300

The Hang Seng Index is recovering from strong selling pressure, indicated by bearish divergence on Twiggs Money Flow (13-week). Breakout above resistance at 22000, indicates a primary advance with a target of 23500* Reversal below support at 20400 is unlikely, but would warn of a primary down-trend.

* Target calculation: 22000 + ( 22000 - 20500 ) = 23500

Australia: ASX

The All Ordinaries is consolidating in a narrow band between 4800 and 4900. Bearish divergence on Twiggs Money Flow (21-day) warns of selling pressure. Breakout below 4800 would warn of a secondary correction; confirmed if support at 4580/4600 is broken. Reversal above 4900, however, would test the key resistance level of 5000*. In the long term, breakout above 5000 would offer a target of 6000*; failure of support at 3700 is unlikely, but would signal a primary down-trend.

* Target calculation: 5000 + ( 5000 - 4000 ) = 6000

The ASX 200 is also testing support at 4800. Failure would warn of a correction to test the lower channel border. Bearish divergence on Twiggs Money Flow (13-week) is weakening and a rise above 30% would indicate buying pressure has resumed; reversal below 20%, however, would indicate selling pressure.

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The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

~ Thomas Sowell