Dollar Rally Causes Declines

By Colin Twiggs
October 27, 2009 5:30 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.

US Dollar Index

The US Dollar Index rallied after finding support at 75, causing a decline in gold and oil prices. Breakout above resistance at 76 would signal a test of 77.50, penetration of the declining trendline indicating that the primary down-trend is slowing. A rise above 77.50 is unlikely, but would indicate that the down-trend has ended.

* Target calculation: 76.00 - ( 77.50 - 76.00 ) = 74.50

Dow Jones Industrial Average

The Dow retreated below short-term support at 9900, indicating a test of 9500. Bearish divergences on Twiggs Money Flow (21-day & 13-week) warn of a secondary correction. Failure of support at 9500 would confirm. Recovery above 10100 is unlikely, but would signal another primary advance.

Gold

Spot gold broke through short-term support at $1045, before consolidating above $1035. The short candle indicates hesitancy and is likely to be followed by a down-swing to test $1000. Recovery above $1070 is unlikely at present, but would indicate an advance to $1100*.

* Target calculation: 1000 + ( 1000 - 900 ) = 1100

Bearish divergence on Twiggs Money Flow (21-day) warned of selling pressure on the Market Vectors Gold Miners Index [GDX] ahead of weakness in the spot price. Reversal below $43 would confirm the secondary correction. Divergences between gold miners and physical gold often forewarn of changes in the spot price.

Silver

Spot silver is also testing support — at $17. Reversal above $18 is unlikely, but would offer a target of $19*. Breakout below $17 would warn of a secondary correction; failure of support at $16 would confirm.

* Target calculation: 18 + ( 18 - 17 ) = 19

Platinum

Platinum mirrors the pattern on gold and silver. Failure of short-term support at $1330 would signal a test of $1260.

Crude Oil

Crude oil is retracing to test short-term support between $72 and $75. Respect would signal a primary advance to $85*. The primary up-trend continues. Failure of support at $66 remains unlikely, but would signal a reversal.

* Target calculation: 75 + ( 75 - 65 ) = 85

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