Published on
July 27, 2010 in
Uncategorized.
Tags: bank shares, buying shares, FTSE, FTSE 100, FTSE 250, FTSE index, Market bottom, market rally, Moving Average, moving averages, rally, Royal Bank of Scotland, share tips, short, shorting, shorting shares, sipp, stock market, stock market collapse, stock market crash, stock market recovery, stock market trend, stock prices.
Let’s begin by admitting that no analytical system of the Stock Market is perfect and always 100% right. But there are some technical signals that do tend to ‘work’ more often than not and it is, therefore, worth taking note of them as and when they occur and adjusting one’s trading accordingly.
One such technical signal is when the index (or stock price) meets the level of its 30 week moving average (‘MA’); when it does the index, or share price, will often change direction at, or near, the meeting point. If the price has fallen to the MA level then, often, it will turn back upwards; if it has risen to the MA level then, often, it will reverse and fall back.
As you can see from this chart over the last few years the FTSE has changed direction each time it has met with or come close to the level of its 30 wk moving average and it is at that level again now -
So, it would be wise to take notice of this and to hold fire on any new share purchases or long trades of the FTSE until the picture becomes clearer.
Another point to bear in mind (no pun intended) is that the FTSE is currently in a technical downtrend and within any downtrend there will often be ‘bear’ trend rallies that last for between 3 and 5 weeks. This week is the 4th week of the current rally!
The main UK and US market indices have fallen to the level of their individual 30wk moving averages. As we have outlined before, this is a normal event for any market correction and is usually a cause for the index to change direction ( and, in this case, to bounce).
And, indeed, this is exactly what happened last week. So we should relax a little and be content that the worst of the correction is now over and so provide you with a number of ‘hot’ buy prospects. But we cannot! The reason is that there are so many other signals that suggest that the markets possess an inherent weakness. Therefore last week’s slight and shallow recovery could be a natural but very limited bounce right on potential support levels and that the overall weakness may yet come to prevail and take matter the markets lower.
Our analysis does,then, continue to lead us to the view that these markets are ‘an accident that may be about to happen’!
We would like to be wrong (it always feels nicer when the markets go up rather than down because more people are happier) but, really, it will not matter at all once the (new?) trend becomes established as we will be able to call ‘shorts’ just as easily – and probably more profitably – than ‘buys’.
So, we just wish that we could be more definitive but, at this stage, it just in not possible; the support levels have held good for the last couple of weeks and we need to see if this will continue.
Patience has to remain the watchword.
Individual market commentary and illustrative charts are available at http://www.sharehunter.com/news/market-review/
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