The ASX 200 broke through support at 4220 on the hourly chart, signaling a correction to test primary support at 4040. Retracement to test the new resistance level is weak and follow-through below intra-day support at 4180 would confirm the signal.
Dow warns of correction
Dow Jones Industrial Average reversed below short-term support at 12000. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure — and a correction to test primary support at 10600. Reversal (of TMF) below zero and follow-through (of DJIA) below 11900 would strengthen the signal.
Now for the correction
Several weeks ago, when asked what it would take to reverse the bear market, I replied that it would take 3 strong blue candles on the weekly chart followed by a correction — of at least two red candles — that respects the earlier low. We have had three strong blue candles. Now for the correction.
On the S&P 500 expect retracement to test support at 1200 or 1250. Respect of 1250 would signal a strong up-trend, while failure of support at 1200 would warn of another test of primary support at 1100. A trough on 13-week Twiggs Money Flow that respects the zero line would also indicate strong buying pressure.
* Target calculation: 1225 + ( 1225 – 1100 ) = 1350
Dow Jones Industrial Average weekly chart displays a similar picture. Expect retracement to test support at 11500. A peak on 63-day Twiggs Momentum that respects the zero line would be bearish — warning of continuation of the primary down-trend.
* Target calculation: 11500 + ( 11500 – 10500 ) = 12500
The Nasdaq 100 is testing resistance at 2400 — close to the 2011 high. Breakout would signal a primary advance to 2800*, while respect would warn of another test of primary support at 2000. Bullish divergence on 13-week Twiggs Money Flow has warned of a reversal for several weeks.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
Spot gold correction tests $1600
Spot gold is testing support at $1600/ounce, but the primary trend remains upward. Expect a rally to the declining trendline. Breakout above $1700 would indicate the correction is weakening, while failure of support would test $1500*.
* Target calculation: 1700 – ( 1900 – 1700 ) = 1500
Amex Gold Bugs Index, representing un-hedged gold stocks, is testing primary support at 500. Failure of support would warn of a reversal in the primary trend and would be a bearish sign for spot metal prices.
Gold falls hard — not my best call
Spot gold broke support at $1700/ounce, falling hard to $1650. The calculated target is $1600* or $1500 depending on whether you take the base of the double top as $1750 or $1700.
* Target calculation: 1750 – ( 1900 – 1750 ) = 1600
When you look at the trend channel on the weekly chart, however, it is likely that the sharp correction will overshoot the trend channel on the lower side. Possibly as low as $1300*.
* Target calculation: 1500 – ( 1900 – 1700 ) = 1300
I have to eat my words from September 11: “With Europe awash with stories of the imminent default of Greece, and German banks told to prepare for a 50% haircut on Greek bonds, this would be a good time to buy gold.” Sure I qualified by warning that below $1800 all bets were off, but should have placed more emphasis on the overbought situation on the weekly chart and less on the approaching European tsunami.
Brent Nymex WTI Crude
Brent crude respected its declining trendline and is likely to re-test support at $104. Failure would warn of a correction to the long-term, rising trendline at 95*.
* Target calculation: 105 – ( 115 – 105 ) = 95
Gold finds safe haven support
Softening of gold prices from the “stronger” dollar is being offset by demand for gold as a safe haven from the looming euro-zone crisis. Respect of support at 1750 would indicate another test of $1900; confirmed if spot recovers above $1830. The pattern remains bullish at present, but breakout below $1750 would warn of a double top and correction to $1500/$1600* (depending on whether you take the base as $1700 or $1750).
* Target calculation: 1900 + (1900 – 1750 ) = 2050 and 1750 – (1900 – 1750 ) = 1600
Gold miners such as AMEX Gold Bugs Index ($HUI) continue to test support after their recent breakout. Failure of support at 600 would warn of a bull trap and weaker spot prices.
* Target calculation: 600 + ( 600 – 500 ) = 700