Correction threat grows
By Colin Twiggs
March 13th, 2011 10:00 p.m. ET (2:00 p.m. AEDT)
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.
Global
Global re-insurers were hit by a sell-off following the devastating earthquake and tsunami in Japan. Losses are so far estimated at $10 to $15 billion; a fraction of the $100 billion cost of the 1995 Kobe earthquake (Guardian). Apart from the initial downward pressure on re-insurers, we can expect a subsequent sell-off of investments when they are called to cover the actual losses.
The Dow Global index ($DJWO) is testing medium-term support at 258; failure would signal a correction. Twiggs Money Flow (21-day) reversal below zero would warn of selling pressure. The primary trend remains up, but penetration of the rising (olive) trendline warns that momentum is slowing.
* Target calculations: 250 + ( 250 - 236 ) = 264
USA
Dow Jones Industrial Average
The Dow continues to test support at 12000. There is little indication of strong selling pressure from Twiggs Money Flow (21-day), but reversal below 12000 would signal a correction. Penetration of the rising trendline warns that momentum of the primary up-trend is slowing.
* Target calculation: 11200 + ( 11200 - 9800 ) = 12600
S&P 500
The S&P 500 continues to test support at 1300. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Reversal below 1300 would confirm a correction.
* Target calculation: 1220 + ( 1220 - 1020 ) = 1420
Transport
The downward trend on Fedex appears hesitant, with the bellwether stock recovering above 90. The broader Dow Transport index has formed a broadening wedge, signaling uncertainty.
Technology
The Nasdaq 100 is testing medium-term support at 2300, while displaying a bearish divergence on 13-week Twiggs Money Flow. Reversal below the 2007 high at 2250 would warn of a strong correction, possibly to the long-term trendline.
Canada: TSX
The TSX Composite retreated sharply, breaking support at 13700 to warn of a correction. Twiggs Momentum reversal below zero would strengthen the signal. Twiggs Money Flow (21-day) reversal below zero on the $CADOW would also warn of a correction.
United Kingdom
The FTSE 100 broke support at 5850, signaling a correction. Bearish divergence on Twiggs Money Flow (13-week) warns of selling pressure. Expect a test of primary support at 5500.
* Target calculation: 5800 - ( 6100 - 5800 ) = 5500
Germany
The DAX broke the lower border of its ascending broadening wedge, offering a target at the base of 6550. Breach of support at 7000 strengthens the signal.
France
The CAC-40 broke support at 4000, signaling a correction. The initial test will the long-term, rising trendline at 3800. Twiggs Money Flow (13-week) reversal below 5% would confirm selling pressure.
India
The Sensex respected resistance at 18500 and is retreating towards primary support at 17500. Failure would signal a decline to 16500*. Declining 13-week Twiggs Money Flow indicates long-term selling pressure.
* Target calculation: 17500 - ( 18500 - 17500 ) = 16500
Singapore
The Straits Times Index respected resistance at 3120, confirming the primary down-trend. Failure of support at 2970 would offer a target of 2820*. Completion of the Twiggs Momentum peak below zero would warn of a strong down-trend.
* STI Target: 2970 - ( 3120 - 2970 ) = 2820
Japan
The Nikkei 225 and $JPDOW fell 5% or more at the Monday open, signaling a correction to test primary support (at 53 on the $JPDOW and 8800 on the Nikkei). Bearish divergence on Twiggs Money Flow warns of strong selling pressure.
South Korea
The Seoul Composite Index is already undergoing a correction. Failure of support at 1920 would test 1850*. Falling 13-week Twiggs Money Flow warns of continued selling pressure.
* Target calculation: 1920 - ( 2000 - 1920 ) = 1840
Taiwan
The Dow Jones Taiwan Index closed below support at 205, signaling a correction. Bearish divergence on Twiggs Money Flow (13-week) indicates selling pressure.
China
The Shanghai Composite Index found resistance at 3000 and is retracing to test the rising trendline. Twiggs Momentum reversal below zero would warn of weakness and a possible down-trend; confirmed if support at 2650 fails.
* Target calculations: 3100 + ( 3100 - 2700 ) = 3500
The Hang Seng Index is losing momentum (indicated by penetration of the rising trendline). Declining Twiggs Money Flow (13-week) warns of selling pressure. Breach of support at 22500 would signal a primary down-trend.
* Target calculation: 22500 - ( 24500 - 22500 ) = 20500
Brazil: Bovespa
The Bovespa Index is in a primary down-trend, but consolidating below resistance at 68000. Upward breakout would signal another test of 72000, while reversal below 64000 would offer a target of 60000*. Bullish divergence on 21-day Twiggs Money Flow indicates buying pressure, but a fall below zero would reverse the signal.
* Target calculation: 64000 - ( 68000 - 64000 ) = 60000
South Africa: JSE
The JSE Overall index broke support at 31400, signaling a correction to 30000*. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure.
* Target calculation: 31500 - ( 33000 - 31500 ) = 30000
New Zealand: NZX
The NZX 50 Index is retracing to test its new support level at 3340; failure would warn of a correction. Strong bearish divergence on 13-week Twiggs Money Flow and subsequent reversal below zero warn of a primary down-trend.
Australia: ASX
The All Ordinaries is testing primary support at 4650. Monday's long tail indicates the presence of buyers, but failure of support would warn of a primary down-trend. Twiggs Money Flow (21-day) below zero indicates medium-term selling pressure.
The ASX 200 is similarly testing primary support at 4580. The sharp fall and a Twiggs Momentum peak below zero would warn of a primary down-trend.
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