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What's New

By Colin Twiggs
November 22, 2007 4:00 a.m. ET (8:00 p.m. AET)

This newsletter is subject to Incredible Charts Terms of Use.

Last Survey

Thank you for the invaluable feedback from our last survey. We asked readers to help set priorities between three development projects. The Stock Screener received the highest number of votes, with Indicators second, and Drawing Tools last.

Thirty-six per cent of votes were cast by premium subscribers; sixty-four per cent by members using the free version.

We are looking to expand our programming staff and hope to report better progress in our next update. If anyone is interested we are looking for experienced programmers familiar with several of the following languages: Delphi, C#, C++, MySQL, Javascript, HTML and Adobe Flash.

Quick Survey

Our next quick survey relates to the newsletters. We are currently trialing a new format, with three weekly newsletters:

• Tuesdays: Gold, Oil & Forex
• Thursdays: Interest Rates, Yields & Spreads (below)
• Saturdays: Stock Markets & Indexes

Please tell us whether you prefer the new or the old format.

Here is an excerpt from today's newsletter:

Recession Warning

By Colin Twiggs
November 22, 2007 2:00 a.m. ET (6:00 p.m. AET)

These extracts from my 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.

Dow Under Threat

The Dow is testing primary support at 12800; failure of this level (a close below 12800) would signal a primary down-trend. We might see a a few days of consolidation above the support level, but I am convinced that the economy is headed for a recession — and will take the stock market along with it.

In a larger time frame, there is a clear breakout below the long-term trend channel, while Twiggs Money Flow shows a large bearish divergence.

The Dow Jones Transport index started a primary down-trend after breaking support at 4700; so a Dow Industrial close below 12800 would signal the start of a bear market. Fedex, often a lead indicator for the general index, has also dived after breaking long-term support at $100.

If you buy the line that "This time it's different because of China", and believe that other markets will not be as badly affected, ask yourself: "Who is China's biggest customer — who do they sell most of their manufactured goods to?"

A Shanghai Composite fall below 5000 would signal that the secondary correction is likely to continue.

The Yield Curve

The yield curve remains our most accurate tool for predicting recessions. The only problem is that signals can occur 12 to 18 months in advance of a down-turn — leaving plenty of time for doubts to grow as the market keeps rising.

Here is an update of the chart published on January 10, 2007.

Every time there has been a significant rise in short-term interest rates over the last 45 years, a recession has followed — except on those rare occasions where long-term rates have shown a corresponding rise, maintaining a positive yield curve. In a nutshell: whenever the yield spread (maroon line) falls to zero, a recession follows.

My conclusion from the January 2007 newsletter still stands: It is likely, however, that we will witness a market down-turn in the next 12 months. We will need to remain vigilant throughout 2007 -- particularly in October, the start of several previous down-turns.

There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

~ John Kenneth Galbraith.