EMU & Gold

By Colin Twiggs
February 16, 2010 11:30 p.m. ET (3:30 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.

The Dow rallied strongly on Tuesday after the long weekend. Shanghai and HongKong are closed this week for the Chinese New Year. The European Monetary Union is having difficulty deciding on a course of action to resolve the Greek debt crisis. The market has been comforted by some of the rhetoric, but will soon grow anxious if a solution does not promptly follow.

Commodities & Precious Metals

The Baltic Dry Index continues its correction toward primary support at 2100. Falling demand for bulk commodities, primarily from Asia, has weakened demand for resources stocks.

Gold rallied to $1120 per ounce, breaking its downward trendline. Retracement that respects support at $1080 would confirm the end of the correction. Rising sovereign debt risk could lead to a flight back to gold.

USA

Dow Jones Industrial Average

The Dow is testing resistance at 10300 after a false break below 10000. Recovery above 10300 would confirm a bear trap — offering a target of the January high at 10750. Reversal below 10000, however, would signal a correction to 9000 — the base of the broadening wedge. Twiggs Momentum Oscillator (21-day) recovered above its declining trendline, while Twiggs Money Flow (21-day) similarly indicates a rally.

S&P 500

The S&P 500 is similarly testing resistance at 1100; breakout would indicate a rally to 1150. Twiggs Money Flow (13-week) recovery above the declining trendline would strengthen the signal.

Transport

Fedex, UPS and the Dow Transport Average continue in a secondary correction, with no sign yet of an end.

Technology

The Nasdaq 100 found support at 1740 before rallying to test the band of resistance between 1800 and 1820; breakout would signal a test of 1900. Bullish divergence on Twiggs Money Flow (21-day) indicates short-term buying pressure. Reversal below 1740 is unlikely, but would warn of a strong correction.

Canada: TSX

The TSX Composite broke through the declining trendline and resistance at the recent peak of 11400, signaling the end of the correction. Twiggs Money Flow (13-week) recovery above the declining trendline would confirm. Reversal below 11000 is unlikely but would warn of a strong correction.

United Kingdom: FTSE

The FTSE 100 recovered above the declining trendline; breakout above 5300 would indicate an early end to the correction. Twiggs Money Flow (13-week), however, remains well below zero, warning of selling pressure. Reversal below 5000 would indicate a strong correction.

Germany: DAX

The DAX likewise continues to show a strong bearish divergence on Twiggs Money Flow (13-week). Expect resistance at the early February peak of 5700.

India: Sensex

The Sensex is also headed for a test of resistance at 16500 after breaking the descending trendline. Twiggs Money Flow (13-week) recovery above the declining trendline, and/or breakout above 16500, would signal the end of the correction — and another test of 17500.

Japan: Nikkei

The Nikkei 225 found support at 10000; respect of this level would confirm the primary up-trend. Failure of 10000 is less likely, but would test primary support at 9000. Twiggs Money Flow (13-week) holding above zero indicates short-term buying pressure.

South Korea

The Seoul Composite recovered above the declining trendline after finding support at 1550. Recovery above 1620 would signal another test of 1720. Twiggs Money Flow (13-week) again holding above zero indicates short-term buying pressure.

China

There is no trading on the Shanghai Composite Index this week. Last week's market appears bearish, with declining Twiggs Money Flow (13-week) and penetration of support at 3000. Recovery above 3050, however, would indicate that the correction is weakening. In the long term, breakout below 2700 would signal a primary down-trend.

The Hang Seng Index is likewise closed for New Year celebrations. The index recovered above 20000 and the declining trendline, but still appears bearish. Even recovery above 21000 would not reverse the primary down-trend. Twiggs Money Flow (13-week) well below zero confirms strong selling pressure.

Australia: ASX

The ASX 200 also benefited from the lighter mood on Wall Street, respecting primary support at 4500 and rallying through short-term resistance at 4650. Expect a rally to test resistance at 5000 in the medium term. Twiggs Money Flow (13-week) breakout above the descending trendline would confirm. The long-term picture, however, remains bearish: a right-angled broadening wedge pattern would offer a target of 4000* if there is a break below 4500.

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

The All Ordinaries shows a short-term bullish divergence on Twiggs Money Flow (21-day) indicating buyer interest; recovery above zero would confirm an advance to 5000. Expect resistance at 4800. Reversal through support at 4500, however, would warn of a primary down-trend — confirmed if there is a lower high/peak followed by a new low.

Those who are not fired with enthusiasm will be fired with enthusiasm.

~ Vince Lombardi