BUT

There is not a lot of conviction in the current rallies and there remains the (still real) possibility of a sudden crash. We will not repeat here all of the charts but our warning of a possible collapse in share prices as outlined in our 8th January ‘FTSE Forecast’ report does remain a distinct and dangerous possibility.

Well, if that is true and if the stock markets follow a 1930’s pattern then we are all in for a torrid time  -

Here is the DJIA from the 1929 crash thru’ to 1933 (weekly prices) -

(Click on chart to enlarge)

But we have to observe that the markets have, over the last few months (of dire and worsening predictions), held up remarkably well and, so far at least, show little sign of the calamity of a 1930’s style crash and attrition period.

Here is the Current DJIA from 2007 to date -

For the present Dow to mirror the 1930’s Dow it would first have to fall below the 7000 level and then drift down over the succeeding two to three years towards the 1470 area (-89% from the 13362 October 2007 high). That hardly looks likely! Even a collapse to the 7000 level, although not impossible to consider, does not look very likely.

Turning to the FTSE 100, the effect of a 1930’s style collapse and attrition period would involve first a crash to the 3475 level (which will happen if the 4782 support level is broken!) and then a drift down towards the 750 area! -

Again, that hardly looks likely given the degree of support that the 5000 level has been providing for the FTSE let alone the 4782 level which would have to be pierced by a strong down move.

In fact, what seems to be happening currently is that the FTSE 100 is preparing for a sizeable jump. It has been receiving good support and is now in process of breaking out above the 5400 level (which we reported previously it was likely to reach). And now we find that it may be able to gain ground above the higher level of 5650 that we also highlighted earlier; there is now good prospect that the FTSE could jump to the 5770 level before falling back again.

The FTSE 100 (weekly prices) -

But, just so that we don’t entirely lose our ‘jeremiah’ reputation – a rise to 5600 or even 5770 would not preclude the possibility of a subsequent collapse. And any such collapse would have an even bigger impact coming, as it would, from an higher level and perhaps when expectation of it had lessened – there is nothing that old Damocles likes to do more than to swing that great sword of his when we mere mortals least expect it!

Alan Saunders           Chief Analyst,  ShareHunter

It is this sort of practical and straight forward analysis that has helped us and the ShareHunter subscribers not just to position themselves correctly and to make money by trading with the dominant trend but also, and so importantly, to avoid losing large chunks of their investment capital by avoiding the sudden downturns in share prices.

Here, by way of example, area  few extracts from The ‘FTSE Forecast’ during 2011 so far -

1. 31st Jan  – “…if the 5770 level holds then the FTSE will rise to 6055 again but if it fails then the FTSE will fall to 5000…”

2. 13th Feb – “…Our special ‘Momentum Indicator’ is continuing to point towards a coming sharp fall on the markets…”

3. 13th Mar – “…The signals presented bu our ‘Momentum Indicator’ show a disturbing divergence for the FTSE (even more pronounced for the S&P 500); something just isn’t right and we all need to be watchful (for a crash)!…”

4. 25th Apr – “…A triple Top is forming – this could lead to a sharp downturn in the FTSE….”

5. 2nd May – “…The FTSE is at an important ‘Either/Or’ juncture – Either it is going to break upwards OR it is going to crash…”

6. 5th Jun – “…The FTSE is finely balanced and could soon start an extensive decline…”

7. 19th Jul – “…Do not be tempted to buy shares now. A Painful time is now due to follow. A fall is approaching and it could be fast and furious….”

8. 15th Aug – “…The markets are building towards a decisive downmove…”

9. 4th Sep – “…Share prices are likely to fall again – and will take the FTSE down to the 4782 area…” (NB. the FTSE fell to 4791 on the 8th Sept!!!)

And, for Autumn/Winter 2011 – “…The FTSE will fall again to the 4782 area and then likely crash as far as the 3500 level”

ShareHunter’s ‘Trend Analysis’ is unique and our forecasts have a high degree of accuracy allowing our subscribers to enjoy successful investment opportunities – in falling as well as rising markets.

Join us!

But we anticipate (expect!) that not one of ShareHunter’s subscribers  (well, those of you who read the ‘FTSE Forecast’ each week anyway) got caught holding Long trades in such a dire crash.

We have been consistent over many months now in identifying the dominant trend of the markets and of the FTSE 100 and S&P 500 in particular and warning of the likely falls to follow as the trend strengthened and we have been consistently accurate with our forecasts of the levels that the FTSE is likely to reach.

We would, of course, deny that this is a “We told you so” blog …(but you ‘re right. It is).

Today the FTSE has reached the 5000 level that we mentioned in Sunday’s ‘FTSE Forecast’ report – but it hasn’t closed below it, yet! Should it do so then it will certainly fall to test the 4782 level and, should it then close below 4782 (for two consecutive days) then its next major low is likely to be the in the area of 3500!

So, it could be a case of…”a 5% in-a-day crash to 5000?…you ain’t seen nothing yet”!! We wouldn’t mind being wrong but the analysis shows that if 4782 fails as a support level then that is what is going to happen.

We are all due for some exciting times in the coming weeks. And, one day there is, of course, going to be a turning point when an investment into shares is going to create huge wealth over the longer term.

It would pay you to get the support of ShareHunter’s consistently accurate analysis as your guide. Visit www.sharehunter.com and subscribe for just about the best  stock market and share analysis that there is.

Here is the chart of the FTSE 100 using weekly prices (which is the only way to properly determine the dominant trend of the market) -

The FTSE 100 is likely to fall back down again to the 4782 level where it will hope to find buyers jumping in so allowing it to rally back up the scale. But, if it fails to find sufficient support and falls, and closes, below 4782 then it will be destined to go quite a lot lower; as we have indicated in previous reports, probably down to the 3475 level area.

Analysis of the wider market doesn’t show any greater degree of support for a meaningful rally. The FTSE 250 looks likely to drift down towards a test for support at the 8850 level area -

It could prove to be a costly mistake to be buying into this market (other than on a very short term basis).  Support from across the Atlantic looks very unlikely and the FTSE is in a Downtrend as its dominant trend and, whilst that remains in force, lower share prices are likely.

The list showing which Sector is in which Stage is important as -

• a ‘safe’ buy has to be showing as in a Stage 2 Uptrend
• a buy can be made whilst in Stage 3 Topping trend but only really for a scalping profit as
• generally, a stage 3 trend, will sooner or later, morph into a Stage 4 Downtrend and
• Stage 4 Downtrend incumbents should not be bought but be considered as sell-short prospects.

The complete list is available on request to Admin@ShareHunter.com

(Click on the chart to enlarge)

at Friday’s close the FTSE was at 5129 – some way below the halfway level of the month’s spread. This is a sign of its inherent weakness and says to us that the 4782 level is likely to be tested again soon.

And that is when its importance will be realised; if 4782 fails to provide support and the index falls below it then the FTSE 100 will be destined to fall towards a third test of the 3475 level.

However, there is the possibility that there will be some support at 4782 which will allow a short recovery rally (as bottom trawlers jump in and buy at what they perceive is “good value”) but the emphasis here is that it is likely to be a short lived rally as, unless the trend changes, the Downtrend will resume.

With the Downtrend established as the FTSE’s dominant trend there is a very real prospect that that is what is going to happen. (the old adage “the trend is your friend” holds good. If you know the current dominant trend then you have a pretty good idea of where the market is likely to go next.).

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 FTSE 100 has made a low today at 4791 – close enough!! A rally should soon commence.

At this stage of the cycle we cannot be sure if 4791 will prove to be the final bottom – but we doubt that it will be. There may be a good pull back to the level of the neckline (the dotted line) before the Downtrend recommences.

In our weekly ‘FTSE Forecast’ reports we have been warning, for weeks now, that this big crash was coming so good profits have been made from shorting stocks during the last week and more profits will be made as the market rallies and then , probably, crashes back again!

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.