A remarkable two weeks allowing us to enjoy (mainly) increasing prices.The S&P 500 has managed to break above resistance (at the 950 level) and, provided it can confirm its strength by staying above 950 this week, there does not appear to be too much to prevent it running up to the 1100 level – taking most of the world’s markets up with it.
For the UK the index to watch most closely is the FTSE 250 (NOT the geographically wider FTSE 100). The FTSE 250 index has been moving up and down withing a lower limit of 6850 and an upper limit of 8050. It is now close to testing the upper limit and the result will be definitive for the next few weeks. If it breaks above 8050 (as it looks as though it should) then it will move, probably very quickly, up another 800 or so points to the 8850 area. However, If it cannot get above 8050 then it is destined to fall back and continue a moribund existance for a few more weeks.
The FTSE 250 is continuing to move up but it is trading within the range 6850 to 8050 and cannot be a ’safe’ buy until it is over the 8050 level.
The markets bounced right ‘on cue’ – the major indices were each testing the levels of their 30wk.moving average and duly bounced off of them.
The point about this is that it is very often the case that an index (or a stock) price will travel to ‘meet’ its moving average and, on that meeting, it will change direction. Thus it is that the direction of the moving average is an important indicator of the main trend of the market (or stock) and why we can anticipate a bounce when a price is falling to the level of its moving average.
Anyhoo, what this suggests, for the time being at least, is that there is some underlying strength to the markets and that we might start to look for the possiblity of new ‘bull’ market trends being not too far off. But please don’t rush in and over commit tothese markets yet; they are still volatile and there really isn’t the mass of volume that we would like to see and on which more definitive trend indications can be made.
We are becoming increasingly concerned that the stock market recovery has run out of steam and a summer (and possibly autumn too) of discontent and disallusionment is ahead.
It is not impossible for the UK and US stock markets to fall back again to the March lows; indeed there are an increasing number of signals that begin to suggest that this is going to happen.
As yet, it is too early to be definitive but the risk has been increasing for the last few weeks and, if there is not a strong rebound in the markets over the coming two weeks, then the risk will become real. And that means, for example that the FTSE 100 could fall by some 600 points, the FTSE 250 by some 1500 points and the S&P 500 by some 200 points. And the real ‘nasty’ would then be that they could tumble even further!
Let’s all hope that this is just a worry on our part and that this is just a summer time non-event. But please be careful and keep most of your investment powder dry – just in case it isn’t!
Our Overall Market Ratings (‘OMRs’) for the FTSE 350 and the S&P 500 have hardly changed over the past few weeks. They continue to indicate a progression towards a new ‘bull’ market. But the OMRs of both these major markets must, for the time being, still be considered as indicating only a potential ‘bull’ market trend rather than an actual ‘bull’ market because of the split between the Stage 1 and the Stage 2 proportions (the majority of stocks being in Stage 1 trends). Because of this split our concern remains the ever present possibility of a sharp retracement in prices as Stage 1 trends are always more volatile and susceptible to an increase of sellers over buyers on bad news.
FTSE 100 – The index continues to trade in a range between (above) its Moving Average (‘MA’) and the overhead resistance level at 4660. It is now falling towards a test for support on its MA at the 4160. Bulls must hope that it finds support there. If it doesn’t and it falls below its MA then this will presage a steep fall back down to the 3760 level and, probably, then on down to the important support level at 3475.
So it is vital that the index stays above 4160 if there is to be any hope at all of any continuation in the recent recovery.
FTSE 250 – The FTSE 250 continues in much better shape than its big sister (above) as its MA is still rising rather than just meandering sideways as is the case with the FTSE 100. The index itself is tending to tread water though and to trade in a range between 6840 and 8050. The upward moving MA will ‘meet’ the index price if the price continues to move sideways. This will be an important test as, at the meeting of the two, the price will either jump or drop. So this index needs to be carefully watched over the next few weeks with special attention being paid to the price/moving average relationship.
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