It has, for example, not only warned subscribers of the impending stock market crash many weeks before it occurred but also it gave the warning on the first day of the crash that further were falls due.

We also highlighted the exact level at which the FTSE would stop falling and turn around.

It just doesn’t get better than that!

The low for the week was right on the support level that we had identified for members a week earlier!

The FTSE is now in something of a state of limbo. There is the possibility that it might claw its way back up to the 5670 area and even, possibly, to the 5750 area as it is a fact that there is always a positive period that follows such a steep collapse as the FTSE has suffered over the past two weeks.

This ‘limbo’ period is a dangerous time as a sense of ‘recovery’ can fill the air and buyers begin to lose their caution and start doubling up on their earlier purchases so as not to miss out on the expected recovery (the earlier concerns about the state of the market being explained away as “over reaction”).

But, beware, because it is a fact that, until it changes, the market is still in the early phase of a stage 4 Downtrend which, by its very nature, will follow through with more declines in share values after the bounce. It has happened before -

Click on the cart to enlarge it

It is likely that the FTSE 100 will fall to test the strength of the support at the 4782 level again at some point. If it should close below that level then we can expect more falls and, perhaps, a decline all the way down to the 3475 level again.

So, enjoy and benefit from any sustained bounce that the FTSE may provide over the coming weeks but remember it is in a Downtrend as its dominant trend and that it will, therefore, fall back again.

Of the 8 trend indicators that we use to identify current and likely direction there is only 1 showing as positive for the FTSE 100 index, with 3 showing as neutral and 4 showing as negative. This means that the bias is well in favour of a decline to follow.

If this downward bias continues as, frankly, we expect it to, then we need to consider the probable effect on share prices. To do this we need to look back. The chart below shows the full 27 year history of the FTSE 100 index -

FTSE 100 – Monthly price chart:

(Click on the chart to enlarge it)

Two aspects are immediately obvious, firstly how the FTSE vibrates to the “8ths” rhythmic scale and, secondly, how it strives to test previous highs and lows.

So, now we have the question of whether or not the FTSE will finish its 2009 – to date attempt to test the previous highs by adding that extra +25% to the +75% already achieved since March 2009. The answer to that is easy – if the index can close above 6090 for two consecutive weeks then it will almost certainly end up at the 6900 area.

But, that scenario is looking increasingly unlikely. Not only is the FTSE displaying signals of weakness but it has also spent the last 7+ months going sideways. So how will we know if it is going to fall further – indeed, how will we know if it is going to crash?

Again, the answer is relatively easy – two possible events will tell us (and will get us shorting stocks): Firstly, the neckline underneath the lows will be broken to the downside. Note how this has occurred on each of the previous two occasions of a FTSE major collapse -

Secondly, and by way of confirmation that the dominant trend has changed to the Downtrend (so none of us should be buying stocks – just shorting them), there must be a crossover of the 13 and 34 week exponential MAs -

Until these two events occur the FTSE is likely to continue with its sideways movement but as soon as they have occurred we can expect the FTSE to fall, and probably to fall quite heavily. It is likely to crash by 25% or so from the 6090 level and could, as a worst case scenario fall all the way back down to test the lows at the 3475 level again!

When you look back to the FTSE monthly prices chart above you can see that this is a perfectly possible outcome. But when is it likely to happen?…

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That is why we learned to use the ‘satellite approach’ to look down on the longer term dominant trends to establish how best to structure a current investment strategy.

Looking back over the last 13 years history of the FTSE 100 it has entered a ‘Stage 3’ Topping (or Distribution) trend a total of 6 times. The results have not, though, always been the same. Given that a ‘Stage 3’ trend can only set in after a ‘Stage 2’ Uptrend the danger to be aware of is that the ‘Stage 3’ trend itself is likely to be followed by a ‘Stage 4’ Downtrend but, and as can be seen from the chart below, that seems to depend on the strength and length of the preceding ‘Stage 2’ Uptrend -

( Click on the chart to enlarge it)

Working from left to right we can see that the first ‘Stage 3’ period persisted from June 1999 to Sep 2001, a total of some 27 months as the long Uptrend exhausted itself before it morphed into a strong ‘Stage 4’ Downtrend. Then, following the swing into a ‘Stage 2’ Uptrend after the March 203 bottom, the next two ‘Stage 3’s were comparatively short and were followed by a return to the (unfinished) Uptrend. The next topping ‘Stage 3’ trend occurred after the Uptrend had become exhausted and it ran from July 2007 to July 2008 before it too morphed into a another steep ‘Stage 4’ Downtrend.

The 2010 ‘Stage 3’ trend was followed by another Up leg and so the question now hangs there – will the 2011 ‘Stage 3’ be followed by another Up leg or by a swing into a ‘Stage 4’ Downtrend?

To answer that question, at least temporarily, we look to the various technical signals; these do still indicate that the balance of probability is that the 2011 ‘Stage 3’ trend will be followed by a return to the Uptrend.

Of course, this cannot be guaranteed but it is going to be relatively easy to read because a break back above the 30wk Moving Average will be the first signal of a return to the Uptrend; whereas a new top forming at or below the 30 wk MA will be the first strong signal of an impending ‘Stage 4’ Downtrend.

A brief look across to Wall Street shows that the trend of the mighty S&P 500 might be swinging into the start of a ‘Stage 3’ trend although it is too early yet to be able to be definitive.

A look back over the last 13 years of the S&P 500 shows a similar picture to that presented by the FTSE 100 – that the longer ‘Stage 3’ trends tend to be followed by sharp, lengthy, ‘Stage 4’ Downtrends whereas the shorter ‘Stage 3’ periods tend to return to the dominant ‘Stage 2’ Uptrend -

Most people, respected market commentators included, tend to think that there are only two trends – Up and Down – and that any market move that does not fit into them is ‘trendless’. Wrong! There are 4 distinct trends with ‘Stage 1’ (Accumulation) trend and ‘Stage 3’ (Topping) trend being powerful technical indicators in their own right.

A ‘Stage 3’ Topping trend tends to reflect not just the balancing effect of the buying and selling activities of the ‘bulls’ and ‘bears’ but, particularly, it reflects the nervous environment prior to the market making a definitive move, up or down and, as commented above, the technical signals given towards the end of a ‘Stage 3’ trend will tend to be reliable indicators the likely future direction of the index.

At the moment the, so far short, ‘Stage 3’ trend of the FTSE 100 looks likely to be followed by a further up move – but please don’t put the children’s inheritance on it as it could change very quickly, such can be the market volatility during a ‘Stage 3’ Topping trend.

A full, free, technical analysis report giving support levels etc. is available on request to admin@sharehunter.com

This Stock Market correction will lead to a significant rally but there may be more falls to come first so don’t be in a hurry to start buying – but be ready because there are going to be some bargains to be had and some fast profits to be made.

(click on chart to enlarge it)

The FTSE 100 is at a point of decision. It is swinging into a ‘Stage 3’ Topping Trend as the 2010 (‘Stage 2’) Uptrend has lost its momentum.

Although a ‘Stage 3’ trend is usually followed by a ‘Stage 4’ Downtrend it is not always the case and it can be that the index will yet break out to the upside again beginning another ‘Stage 2’ up leg. There is still time for it to do this before a proper ‘Stage 4’ Downtrend appears.

The current ‘Stage 3’ trend is shown on the chart below (the shaded area) together with the previous two ‘Stage 3’ trends in the last 5 years; one followed by a (long) Downtrend and the other by a further ‘Stage 2’ up leg -

The FTSE 100, weekly prices -

With the potential support at 5770 and 5720 there is some cause for optimism that this ‘Stage 3’ trend might not morph into a full blown ‘Stage 4’ Downtrend but rather return for a second leg Uptrend.

Another plus factor is that the rest of the UK market is continuing to move within a ‘Stage 2’ Uptrend with no signs (yet anyway) of swinging into a ‘Stage 3’ trend. It has to be observed though that the FTSE 250 index does have potentially strong resistance just above its present position in the form of its all-time-high price at 12236 -

The rest of the analysis, which includes the S&P 500 and the DJIA, is available on request to admin@sharehunter.com

It is not looking too promising. Much now depends on the coming week and whether or not the FTSE can pull itself back above, or at least to, the level of its 30wk Moving Average (which is currently at 5923) -

(Click on chart to enlarge it)

The signal being given by its fall below its 30wk MA – combined with the sideways move over the last 21 weeks  (yes, it’s that long) – is that the index could be in process of a swing into a ‘Stage 3’ Distribution (or ‘Topping’) trend.

The significance of this is that a ‘Stage 3’ trend is usually a pre-curser to a swing into a ‘Stage 4’ Downtrend. Added to which the Triple Top formation can be clearly identified which, of itself, can lead to a steep, sometimes fast, decline.

A reminder of the 4 Stages in which the market moves -

So, the poor old FTSE is not promising much at all although there is time yet, just, for it to recover and rally back above its 30wk MA. There are occasions when a ‘Stage 3’ trend is followed by a return to a ‘Stage 2 Uptrend (although these are far fewer than a swing into a Downtrending ‘Stage 4’).

And there are some positive signs elsewhere that might have a beneficial influence on the FTSE and help it to recover or, at least, to avoid a collapse. These are detailed in the latest ‘FTSE Forecast’ Report which is available on request to admin@sharehunter.com

However, we also need to read from the other side of the coin, and that side suggests that there is a danger that the index is growing tired and could, therefore, take a dive back down to the level of its 30 week MA which is currently at the 5770 area -

Click on the chart to enlarge it-

On Wall Street, the continuing nagging worry is that the S&P 500 Index is still not clear of the resistance of the 1334/1350 area that is putting a check on its upward progress and which could cause the index to turn over and fall back. And what the S&P does is likely to be mirrored by the FTSE 100….

….the full ‘FTSE Forecast Report is available, free, on request to admin@sharehunter.com

The ShareHunter ‘Trader’ performance is a direct result of the investment strategy that we provide for all subscribers; the strategy itself is the culmination of many years of trading experience – and it works, allowing profits to roll , capital to be largely protected and to avoid the big losers.

Starting from the 1^st July 2009 the illustrative track record of all of the ‘Trader’ trades, called in FTSE 350 stocks and based on the ShareHunter trading Strategy, is today showing a remarkable 150% increase in capital (gross, excluding trading costs) – and, despite today’s disappointing fall in the FTSE (down 71 points), this total will increase further as 15 out of the current 18 open trades have stops that are at or above the entry price.

No surprise perhaps that our chief analyst, Alan Saunders, was voted Runner-up Research Analysts of the Year in the Daily Telegraph Wealth Awards 2010!

You should not make any decision based solely on past performance, share prices go down as well as up. But the fact that there are tough times ahead is the very reason why, we suggest, that you should consider using the ShareHunter service. Not only might it help you to make good money in the coming months (and have some fun doing it) but also it should help you avoid the pitfalls and problems commonly experienced by many, if not most, investors and to protect the majority of your capital. Our subscribers did not get caught out when Royal Bank of Scotland fell by over 90% – nor in any of the other frights of the last few years and neither will they, or you if you are with us, get caught by similar tales of woe in 2011/12.

The ShareHunter ‘Trader’ service only requires your attention for about 5 minutes around 8.30 am. (to check and change Stop price orders) and about 15 minutes around 11.00am (to consider and decide upon the trades suggested that day). It is suitable for both Spread Betting and for CFD accounts.

2011 could be a year in which many people will lose a lot of money on the stock market. Please don’t be one of them. Joining ShareHunter could be the way to both profit and protect.

With good wishes for the coming year,

Alan

@ShareHunter

The FTSE 100 – Click on the chart to enlarge.

If it can haul itself up above, and stay above, the 5900 level (the May ’10 high) then there is still a chance that it will hit the 6050 level by Christmas.

But our main worry this week is the danger signal being offered by our ‘Momentum Indicator’. Last week we commented that our Momentum Indicator (MI) was still showing as rather less than supportive of the FTSE’s recent climb. This week our concern has grown as the weakness displayed by the MI has increased -

Click on the chart to enlarge.

It is immediately obvious from the above chart that the FTSE has moved upwards during December without any support at all from the MI. This is likely to cause the FTSE to fall back again unless the MI shows a reversal and an increase next week.

Previous weakness indications of the kind we are now seeing from the MI have been followed by retracements of between 20% and 25% from the high.

Now, we cannot say that this is going to happen. It may not. Our MI is not an infallible messenger. And we cannot point to any accurate timing even if it is about to happen; it could be next month or up to six months before the rot sets in. But it is well to be aware that there is an underlying weakness to the FTSE – as well as to Wall Street.