Trading Diary
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March 25, 2006
These extracts from my daily trading diary are for
educational purposes and should not be interpreted as investment advice. Full
terms and conditions can be found at Terms of
Use.
USA
The S&P 500
retraced to test the new support level at 1295. Volumes are low and the doji
candle at [5] signals hesitancy; another test of support is likely. A close
below support would be bearish, while a close above 1310 or further
consolidation would be bullish.
Medium Term: I have plotted a channel around a linear regression
line that depicts the pace of the up-trend in recent years (new drawing tools
will be released with the beta version early next month). The index continues to
advance in a slow up-trend, frequently retracing to test previous support
levels.
Twiggs
Money Flow (above zero) signals accumulation, but this appears insufficient
to break out of the present pattern. We are approaching the end of the first
quarter, frequently followed by a secondary correction, and need to be vigilant.
A fall below the regression line (or 100-day MA) would be a bear
signal.
Long Term: The index is in a slow up-trend, with primary
support at 1180.
The
Dow Industrial Average encountered short-term resistance at
11320 and appears ready to test support at 11150.
Medium Term: The
Dow is rallying strongly after the low of [c] confirmed support at the previous
high of 11000.
Twiggs
Money Flow (21-day) is above zero, signaling accumulation.
Long
Term: The Price Ratio below shows that the Dow has out-performed the S&P
500 over the past few weeks. A rise above the October high would indicate a
flight to safety, with investors shifting to low-risk stocks.
The Dow Jones Transportation Average and lead indicator Fedex are in
strong primary up-trends. UPS is headed for a test of its November high and
appears ready to join them. The three indicators signal increased economic
activity.
The
Nasdaq 100 and the broader
Nasdaq Composite continue to
show hesitancy, consolidating above support at 1630. A rise above the high of
[G] would be a bull signal, while a fall below support would be a strong bear
signal.
Twiggs
Money Flow (21-day) whipsaws around the zero line, signaling
uncertainty.
Treasury yieldsThe 10-Year treasury yield is retracing to
test the new support level at 4.60/4.65%. A successful test would confirm the
breakout.
Medium Term: The Fed is expected to make at least
two more rate increases this year, lifting the short-term funds rate to 5.0%.
The buoyant property market shows signs of slowing, but this may be a better
option than an inverted yield curve -- the forerunner of most economic
slow-downs.
Long Term: The
yield
differential (10-year T-notes minus 13-week T-bills) is close to zero,
warning of declining bank margins and a likely credit squeeze.
The Big Picture: Transport indicators indicate an increase in
economic activity, while equity markets appear to be making some progress.
However, wage inflation, short-term interest rates, and the flat yield curve are
cause for concern and need to be monitored closely.
Gold
Spot gold rose to
$560.20, having completed a bullish higher low at
[A].
Medium Term: Gold is consolidating between $535 and
$575. Expect the current rally to test resistance at $570/$575.
The
Big Picture: A break outside the consolidation range would signal the future
direction of the primary trend.
Crude Oil
Light Crude rose to
$64.26/barrel. A Light Crude or Brent Crude fall below medium-term support at
$58 would be bearish, while a drop below $55 would indicate a primary trend
reversal -- and a strong bear signal for gold. A rise above $70/barrel, on the
other hand, would be bullish.
Currencies
The dollar is
strengthening in the short-term against major trading partners.
Medium
Term:
EUR/USD: The euro has formed a triangular pattern against the
dollar; a breakout would signal the future direction of the trend. At present
the currency is headed for a test of support at [D]; a fall below this level
would be bearish.
USD/JPY: The dollar is consolidating in a narrow band against the yen. A
break through resistance at [4] would be a bullish sign, while a fall below
support at [5] would be a strong bear
signal.
