The FTSE 100 is sitting above potential support in the form of the 5770 level and the 5720 level – being the ‘standard’ support of the -6.25% from the recent run of highs at the 6100 area; there is also the 5594 level a bit lower which should provide support if needed as it is a standard support level of -8.33% from the highs which has already provided support once, back in March -
(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
The FTSE remains in the grip of the 5974/6055 area of resistance and is being supported by its 30wk moving average -
The FTSE 100 , weekly price chart -
(Click on the chart to enlarge it)
Its underlying dominant trend is still the Uptrend so the bias is in favour of a move back up to the top of the resistance are at around 2090 but there remains the possibility of a sudden trend change if the Triple Top formation asserts its influence for a sharp correction -
We have previously drawn attention to the possibility of a 5th attempt at a breakout above the 6055 area resistance and we do so again this week as the pattern of the last three days could imply that a 5th attempt might (no stronger than ‘might’) be under weigh. NB. 5th attempts are usually successful (although not invariably so) and are also usually followed by a fast move in the direction of the breakout (or in the opposite direction if the attempt fails) -
The better news is that our ‘Momentum Indicator’(“MI”) is now slightly less worrying than it has been over recent weeks. What had been happening was that the MI, which would normally lead the index, was sloping downwards whilst the index was sloping upwards – a situation pregnant with the potential for a sharp reversal on the index. Now, however, the situation is less potentially dramatic as the MI is moving sideways suggesting that the index could rally again or, at least, refrain from a steep decline -
Conclusion: The FTSE is ‘hanging in there’; the trend indications are that it should rally up to test the 6055/6090 area again and that it should, at some point soon, break out above it. However, there remains the possibility of a sudden trend change and a sharp reversal so full commitment to this market at the present time is, perhaps, inadvisable.
The FTSE 100 index is back where it was at the very beginning of the year! It is back testing the resistance at the 6055 area that has prevented its rise over the past 3+ months. Importantly, this is the 3rd time that it has made a determined effort to breakout above and beyond the grip of this resistance.
(Click on a chart to enlarge it)
The big danger now is that the FTSE forms a third top at this level. As many of you will know, a triple top formation is very often the cause of a sharp and severe sell off so there is the possibility (no more than that yet) that the FTSE could tumble – and it could tumble all the way down to the 5400 area -
Nothing is for certain in this regards and it may well not happen but it is best to be aware and to avoid over commitment to the market at this time and until the future direction of the FTSE becomes clearer.
The point being that if a 3rd top is not made and the index manages to break above the 6090 high then, after months of sideways frustration it could go shooting upwards and pile on 200 to 300 points very quickly.
But, as we say, it is best to wait and see; the market should give ample warning of what it is going to do.
Good trading.
Alan.
Chief Analyst @ ShareHunter
The FTSE has likened itself to a stone this morning so far!
It is taking up an overly large chunk of ‘elasticity’ as it is some 2.5% below the 5770 support level as I write. The brave among you will be viewing this as a buying opportunity (and be hoping that you are not joining the foolish).
I show below the chart of the FTSE so that you may appreciate the comments made in our last FTSE Forecast Report. If the 5770 ‘elastic band’ doesn’t provide the required support and it breaks then there is a sizeable empty space down to the 5100 level area. There is some minor support that may come in at the 5330 level but, otherwise there is precious little obvious support to prevent the index falling to the 5100 area. The importance of the 5770 elastic support band is, therefore, vital and this week’s movements of the FTSE 100 index will be critical to where it goes next. At the 5600 the elastic is close to breaking but, if it can hold and bounce back during this week then all will not be lost; Indeed it may well prove to be a profitable time to buy -
click on chart to enlarge.
To add to our recent reports about the danger of a stock market crash.
The FTSE has again tested the resistance of the 6050 level and fallen back. But, as it has not fallen hard and is starting to rally it would appear that buyers are still active and wanting to put their money into shares.
There is nothing wrong with that – IF you are an ‘investor’ happy to buy and to hold no matter what state the market is in and irrespective of its vicissitudes. However, if you are unhappy about jumping in to the market and then hoping that share prices will rise then you might be better advised to take a more contrarian approach and not follow this herd as they pile into the equity markets just now.
Many seem to be ignoring, or to have forgotten about, the very real problems that continue to exist in the world; the potential for inflation in the Far East (China et al.) as well as in the UK, the continuing sovereign debt saga of several European countries, the Municipal debt problem in the US etc. etc. The point is that the only thing that seems to be driving the FTSE (and the US indices) upwards is the blind faith that these problems are being resolved and that share prices have only one way to go.
Unfortunately, neither case is true.
To these fundamental points we add our technical analysis of the market indices. We have commented on this in our regular ‘FTSE Forecast’ reports but it deserves repetition and we make the following observations -
1. The FTSE and the S&P, as representative of nearly all of the major market indices, are in a long-term ‘repetitive’ trends – by this we mean they are still within the boundaries of earlier high and low levels and, as such, they offer limited upside potential and are vulnerable to sudden reversals -
2. The US economy is in dire straits with several states (California, New Jersey and others) in severe budgetary problems that may lead to Municipal Bond defaults. Look how the S&P National Municipal Bond Fund has performed of late – it has crashed down by 50% and, if it falls below the 50% retracement support level (shown) then dire problems will follow -
3. And, despite what you may read elsewhere, “Emerging Markets” are unlikely to be a source of salvation. Not only are they likely to similarly suffer in the event of a major downmove but, in any event, they are not looking very bright in their own right. Take two by way of example, China and India.
The Shanghai Composite index is looking pretty sick -
in that it has now fallen below the potential support offered by the 25 % retracement of its big fall and is trending downwards.
And India, although looking healthier, has found resistance at 21200 level of its Nov ’08 high and is now falling down to test for support at the 75% retracement level at 18000. Should that level fail then it is likely to fall to the 14500 area.
So it is unlikely that these markets will provide much upside potential in the coming months.
4. Closer to home, the FTSE 100 has risen to and continues to test a level of major resistance (5970-6050) and the US market indices (S&P 500, DJIA and NASD 100) all have a small increase potential before they too reach levels of potentially hard resistance.
The FTSE 100 -
The S&P 500 -
The DJIA -
Now, these levels of resistance, when they operate, will cause one of two results; either to delay the rising index and to lock it into a congestion or consolidation trend for a few weeks or, possibly, months
or, secondly, to halt the rising index and to push it back down the scale. And that is where the other underlying (fundamental) problems and uncertainties can have a major impact; with the market having turned down it only requires a major incident to erupt (terrorist attack, sovereign debt impasse, currency turbulence, poor corporate earnings….whatever) to cause the indices to start responding to gravity and to crash.
Having said all that and painted a picture of gloom and doom there is a potential brighter side – If, repeat ‘if’, the FTSE can break, and stay, above 6050 then it is likely to push on upwards towards the 6750 level of the June, July and Oct 2007 highs. Here it will find very considerable resistance and the possibility of forming a long term triple top that may then be its denouement; but before then we will all be able to make considerable profits whilst it is on its way up.
Conclusion:
If you are a ‘buy and hold’ investor holding a portfolio of shares then you could be in for a troubled and troubling time of it before you will see any real and lasting increase in portfolio values. The coming months will likely be a time for stock picking and ‘trading’ rather than portfolio holding – for the following reasons:
2. If, on the other hand, the markets do tumble from around the 6050 area then there is no advantage to be had by just holding grimly on as prices collapse – instead trading shares to the downside (“shorting”) will be likely to bring good profits
3. Good stock-picking and trading, rather than holding, shares will allow purchases to be made at lower prices and the commencement of the big rebound that will eventually follow a crash. The ‘buy and hold’ investor will be anxiously watching and waiting to recover, missing out on profits entirely.
Alan Saunders,
Chief Analyst, ShareHunter.com
Last week, at the start of a new year, we took a look back at what had happened during 2010 and how that might impact upon what might happen in 2011.
Our conclusion was that the markets have potential for another 5% or so increase before the possibility of a major price retracement, possibly to the extent of -20% to – 25%, occurs perhaps in March.
And today, after another week during which the FTSE has again failed to break out above the 5970/6050 resistance area and with the other indices chipping away at that potential 5% increase, we see no reason to change that conclusion.
The FTSE 100 -
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