Tough Market

By Colin Twiggs
August 30, 2010 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.

This is a tough market to make money using a trend-following system. The ranging markets may continue for some time and requires different techniques, using shorter term momentum oscillators.

Reminder:

End of the third quarter is a bearish time of the year, with many major crashes (1929, 1987) occuring in October. We are likely to see further consolidation in September followed by a breach of support. The breach, however, may either resolve into a primary down-trend or rally sharply to complete a bear trap. All we can do is remain vigilant and stick to objective signals.

USA

Dow Jones Industrial Average

The Dow found support at 10000 and rallied sharply on Friday. Expect another test of resistance at 10500. Reversal below the former primary support level at 9900 would indicate a primary down-swing, with a target of 8700*. Twiggs Money Flow (21-day) respect of the zero line would be a positive sign suggesting a new up-trend.

* Target calculations: 9700 - ( 10700 - 9700 ) = 8700

S&P 500

The S&P 500 is also testing its former primary support level at 1050. Failure would confirm the primary down-trend. 63-day Twiggs Momentum Oscillator holding below zero suggests a down-trend.

* Target calculation: 1050 - ( 1200 - 1050 ) = 900

Transport

The Dow Transport Index, and major components Fedex and UPS, are headed for a test of primary support ($DOWT 3900). Failure would confirm the bear market.

Technology

The Nasdaq 100 broke short-term support at 1800, indicating another test of support at 1725. Failure would confirm the primary down-trend. 63-day Momentum Oscillator declining below zero strengthens the bear signal.

Canada: TSX

TSX Composite reached resistance at 11900; breakout would test the April high at 12300. 63-day Twiggs Momentum recovery above zero indicates continuation of the primary advance.

United Kingdom: FTSE

The FTSE 100 remains headed for a test of the former primary support level at 5000. Failure would confirm the primary down-trend. Twiggs Money Flow (13-week) below zero warns of selling pressure.

* Target calculation: 4800 - ( 5400 - 4800 ) = 4200

Germany: DAX

The DAX is headed for a test of primary support at 5700. Declining Twiggs Money Flow (13-week) below zero signals selling pressure. Bearish divergence on 63-day Twiggs Momentum Oscillator also warns of reversal to a primary down-trend. Penetration of support at 5700 would confirm.

* Target calculation: 5700 - ( 6350 - 5700 ) = 5050

France: CAC-40

CAC-40 recovery above 3550 would signal another test of resistance at 3750, but Twiggs Money Flow (13-week) completing peaks below the zero line indicates strong selling pressure. Failure of support at 3350 would offer a target of 2950*.

* Target calculation: 3350 - ( 3750 - 3350 ) = 2950

India: Sensex

The Sensex is retracing to test support at 18000 Monday. Recovery above 18500 would confirm the primary advance to 20000*. 63-day Twiggs Momentum Oscillator holding above zero favors continuation of the up-trend. Reversal below 17400 is unlikely, but would signal a decline to primary support at 16000.

* Target calculation: 18000 + ( 18000 - 16000 ) = 20000

Singapore

The DJ Singapore Index is headed for another test of resistance at the recent high. Twiggs Money Flow (13-week) and Twiggs Momentum Oscillator (63-day) holding above zero indicate an up-trend. Upward breakout would signal an advance to 265*.

* Target calculation: 240 + ( 240 - 215 ) = 265

Japan

Slight bullish divergence on Twiggs Money Flow (13-week) favors a rally to test the band of resistance between 5850 and 6000 on the Dow Jones Japan index. But the primary trend remains downward.

South Korea

The DJ South Korea index is ranging between 370 and 385, signaling continuation of the primary advance with a target of 405*. Twiggs Money Flow (13-week) breakout above the declining rally would be a bullish sign. Reversal below 370 is unlikely, but would indicate a correction to test primary support at 335.

* Target calculation: 370 + ( 370 - 335 ) = 405

China

The DJ China index continues its advance. Another Twiggs Money Flow (13-week) trough above zero would indicate that the bear trend has ended. 63-day Twiggs Momentum recovery above zero would strengthen the signal. Reversal below 315, however, would warn of another test of primary support at 275.

The DJ HongKong Index reversed below its rising trendline; failure of short-term support at 410 would indicate that the advance is slowing. Twiggs Money Flow (13-week) is falling sharply, indicating short-term selling pressure; respect of zero, however, would signal continuation of the primary advance. 63-day Momentum Oscillator holding above zero indicates a primary up-trend.

Australia: ASX

The All Ordinaries is testing short-term resistance at 4500. Breakout would indicate another test of resistance at 4650. Twiggs Money Flow (21-day) respecting zero indicates medium-term buying pressure. Upward breakout would signal an advance to 5000*.

* Target calculation: 4650 + ( 4650 - 4250 ) = 5050

The longer term picture is bleaker, with 63-day Twiggs Momentum Oscillator below zero warning of continuation of the primary down-trend. Recovery above zero, however, would suggest a primary advance to 5000.

Freedom is not empowerment....... Anybody can grab a gun and be empowered. It's not entitlement. An entitlement is what people on welfare get, and how free are they? It's not an endlessly expanding list of rights — the "right" to education, the "right" to food and housing. That's not freedom, that's dependency. Those aren't rights, those are the rations of slavery — hay and a barn for human cattle.

~ P.J. O'Rourke