Today is the second consecutive day of a price correction. Is this the start of a more general decline that so many commentators have been expecting? I don’t think so. In fact, at the moment, all of our analytical signals point to a further market rise being likely.
The dominant trend of the market is an Uptrend. This Uptrend started back in August’09 after a 10 month Basing trend (which followed the big 2007-08 Downtrend). Since last August there have been several small corrections but none has lasted more than 2 weeks. I see no reason (yet, anyway), why this one should be any different. It really is a case of whether this correction will involve just 1 week or 2.
Our proprietary Momentum Indicator has turned from positive to ‘undecided’ and this could indicate that the current downturn may run into a second week. Of itself that need not present any serious threat to the Uptrend (it being likely to resume in week 3) except that the 1111/1122 area of the S&P 500 index is critiacl for Wall Street and for the FTSE in London.
If the 1111 level on the S&P 500 is broken to the downside then the danger of a fast and more composite downmove in share prices becomes very real.
If, as we currently suspect, this is just a 1 or 2 week gentle correction then, as we have previously reported, we expect the FTSE 100 to retrace back to 5370 or, possibly in a second week, to the 5200 level and then to resume its climb up to the 5770 level and, possibly, nearer to 6000.
On the other hand, if the S&P breaks down below 1111, we can anticipate the FTSE 100 giving up its current Uptrend and being in danger of a steep fall possibly as far back down the scale as the 4660 level.
So, it is very much the case of “watch this space” or, rather, “watch the S&P 500″.
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