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.

So the FTSE has no definitive trend and it could develop either way (as can readily be seen by even just a cursory glance at the chart below) -

Or, of course, the FTSE could continue to meander along sideways for weeks to come. We doubt that though. The length of the current sideways move is now about 12 months and this is the extreme of any previous sideways move looking back over the last decade. We continue to expect the FTSE to make a definitive move within the next few weeks.

So the message remains ‘go careful and stay watchful’ so that you get into the trend when it starts and, more importantly, so that you don’t get wrong footed and get caught by an adverse move. Patience is the watchword.

So for an index that has been falling and is now testing the level of its MA it is quite possible for it to now change direction and to rally. And that is exactly what might now happen for all of the major indices – but with the possible exception of the FTSE 100. We need the price action this week to confirm the direction change but the FTSE 250, the FTSE SmCap, the S&P 500, the Dow Jones Industrials and the Nasdaq 100 are all fallen to, and are now testing, the current level of their MAs and starting to bounce back.

The exception is the FTSE 100 which has already fallen through its MA. It has found temporary support at the important 5108 level and has managed to rally slightly – but only up to the level of its MA. In other words, if the usual result of a test of the MA level – a change in direction – occurs then the FTSE is due to fall again, not rally.

In this regard it is the FTSE that is out step with the rest of the major indices. It was only a couple of weeks ago when the FTSE led the rest of the world by falling sharply when all the other indices were reflecting an upward tendency that we suggested that it was unlikely that the FTSE was leading the way! We will not then make the same claim now as we could be a  wrong again. However, it has to be observed that with 5 other major indices suggesting that a rally may now be due the bias favours a rally for the FTSE 100 up from the 5108 support level.

The alternative scenario is that, if the FTSE is, again, showing the world’s markets the way to go then all are due for some steep falls and the FTSE itself will be due a damaging fall and, perhaps, to move into a longer term ‘bear’ trend. But, for the moment, this is the more distant scenario.

Individual market commentary and illustrative charts are available at http://www.sharehunter.com/news/market-review/

The ‘change direction’ effect of meeting with its 30wk Moving Average continued to work for all the major indices last week and particularly for the FTSE 100.

With the S&P 500 in process of a (so far successful) test of its important support/resistance level at 1122 all looks to be well with the uptrends of the various markets.

But – and it is a worrying ‘but’ – whereas most of the technical signals for the S&P, the FTSE 100 and 250 and the Dow and Nasdaq 100 are nearly all positive we do have one worrying niggle; a signal that is just not producing the same positive vibes. It is our Momentum Indicator (“MI”).

In the past the MI has been a reliable early indicator of a looming market top and so we do take cognisance of it. Our concern is that this indicator is just not partying in anything like the same way as the indices. In fact, at present, it is travelling in a different direction when it should, if all was well, be moving in the same direction as the indices. The MI is suggesting to mus that the indices may well be putting in a top by reversing direction soon.

From the two charts below you can quickly see how both the FTSE and the S&P have moved upwards during the last week or two whereas the MI has continued to drift sideways or downwards.

If the markets are to continue upwards we would expect to see the MI also moving upwards. But it is refusing so to do. The indices and the MI are moving in different directions. Not a good sign.

Of course all of this could change anfd the MI join the ‘buying’ party but it could also be the case that the party is nearly over.

So, what to do?

Answer; Do not get carried away with the current level of enthusiasm and overcommit to this market. And, where you are committed, keep a close eye on your exit stop prices and keep them up to date.

Individual market commentary and illustrative charts are available at http://www.sharehunter.com/news/market-review/

There are so many similarities between the current moves in the FTSE and  Dow Jones with what happened in 1929-30 that is very scary. The stock market could be on the brink of a possible collapse.

ShareHunter correctly identified the end of the 4 year ‘bull’ market in May 2007 and, in June 2008 forecast the potential for a market crash, giving ample warning of the potential for the 50% collapse in the FTSE 100 index.

The FTSE is once again on the edge of a cliff: The 1929 Wall Street crash wiped 50% off share values and the 2008-09 crash has done exactly the same for the FTSE. The post-crash recovery in 1930 took prices back up to the half-way level of the collapse; the 2009-2010 recovery on the FTSE has done exactly the same.

Then in 1930 the market recovery petered out; the market crashed back by 28%. This could happen again now”.

According to the latest ShareHunter research, if the historical pattern continues to be followed by the FTSE then it is likely to crash down to the 4100 level, if not to 3500. The FTSE has turned by 7% in the last 3 weeks and could soon fall by another 20% or so.

Of course, it may not happen and the market may just blip along sideways before it makes another push upwards but it is well to be aware that there are a number of technical signals that are suggesting that UK and US share prices may take another big hit.

More detail and illustrative charts are given below in the longer blog dated 28th January.

Watch this space….