S&P 500 threatens correction but Nasdaq holds firm

By Colin Twiggs
October 8th, 2013 3:00 am EDT (5:00 pm AET)

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The September quarter-end often heralds a correction as fund managers re-balance their portfolios and shed under-performing stocks. Congressional gridlock raises the probability of a correction even higher.

The S&P 500 continues to test support at the May high of 1675 on the daily chart. Declining 21-day Twiggs Money Flow warns of medium-term selling pressure; reversal below the recent lows would further strengthen the signal. Breach of support and the (secondary) rising trendline would signal a correction to primary support at 1625/1630. Respect of the (secondary) trendline and recovery above 1700 is unlikely, but would indicate another advance.

VIX threatens to cross above 20, into no-man's-land between low and high. Follow-through above 25 would warn of elevated market risk.

Dow Jones Industrial Average is heading for a test of primary support at 14800. Bearish divergence on 13-week Twiggs Money Flow warns of a reversal and breach of 14800 would strengthen the signal. Follow-through below 14500 would confirm. Recovery above 15660 is unlikely, but would indicate a fresh advance.

The Nasdaq 100, however, is surprisingly bullish. 13-Week Twiggs Money Flow troughs well above zero signal buying pressure, while the index advances toward its current target of 3300*. Breach of the rising trendline would warn of a correction to 3050.

* Target calculation: 3050 + ( 3050 - 2800 ) = 3300

The elements of good trading are: 1. cutting losses; 2. cutting losses; and 3. cutting losses. If you can follow these three rules, you may have a chance.

~ Ed Seykota