S&P 500 reverse pennant

By Colin Twiggs

February 11th, 2013 2:30 a.m. ET (6:30 pm AET)

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The S&P 500 displays a small broadening wedge (reverse pennant) on the daily chart. Respect of support at 1500 on the last down-swing (within the wedge) suggests an upward breakout. Watch for bearish divergence on 21-day Twiggs Money Flow — which would warn of retracement to the rising trendline.

The quarterly chart warns us to expect strong resistance at the 2000/2007 highs of 1550/1575. Recovery of 63-day Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.

* Target calculation: 1550 + ( 1550 - 1350 ) = 1750

The Dow is similarly testing long-term resistance, at 14000. Breakout is likely, with 13-week Twiggs Money Flow troughs at zero indicating long-term buying pressure.

I repeat my warning from last week:

These are times for cautious optimism. Central banks are flooding markets with freshly printed money, driving up stock prices, but this could create a bull trap if corporate earnings, capital investment and employment fail to respond.

Canada: TSX buying pressure

The TSX Composite continues to test resistance at 12800. Rising troughs on 13-week Twiggs Money Flow indicate long-term buying pressure. Breakout above 12800 would signal an advance to the 2011 high at 14300*.

* Target calculation: 12800 + ( 12800 - 11300 ) = 14300

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