Correction Warning

By Colin Twiggs
October 29, 2009 3:00 a.m. ET (6:00 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 and FTSE 100 yesterday both threatened a secondary correction — on the 80th anniversary of the great crash of 1929. Today the Shanghai Composite fell below 3000 and the Nikkei 225 below 10000, both warning of another down-swing. The Australian All Ordinaries index closed below 4600, signaling a correction, but final confirmation will come from the Dow.

Dow Jones Industrial Average

The Dow followed through after breaking below 9900, warning of a test of medium-term support at 9500. Bearish divergence on Twiggs Money Flow (21-day) warns of a secondary correction. Failure of support at 9500 would confirm.

Dow Jones Industrial Average

UK: FTSE 100

The FTSE 100 broke out below its trend channel, warning of a secondary correction. Twiggs Money Flow (21-day) reversal below zero strengthens the signal. Failure of support at 5000 would confirm.

FTSE 100

ASX: All Ordinaries

The All Ords closed below support at 4600, signaling a secondary correction. A sharp fall on Twiggs Money Flow (21-day) strengthens the signal. Final confirmation would come from a similar signal on the Dow. The Fibonacci 50% retracement target would be 4300*, while a strong correction would test 4000.

ASX All Ordinaries

* Target calculation: 4900 - ( 4900 - 3700 ) / 2 = 4300

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We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.

~ John Maynard Keynes: The Great Slump of 1930