Late last week buyers obviously reckoned that they could see a good buying opportunity as they returned to the market in force. The result was that the FTSE 100 closed at the top of its range for the week.
The low for the week was right on the support level that we had identified for members a week earlier!
The FTSE is now in something of a state of limbo. There is the possibility that it might claw its way back up to the 5670 area and even, possibly, to the 5750 area as it is a fact that there is always a positive period that follows such a steep collapse as the FTSE has suffered over the past two weeks.
This ‘limbo’ period is a dangerous time as a sense of ‘recovery’ can fill the air and buyers begin to lose their caution and start doubling up on their earlier purchases so as not to miss out on the expected recovery (the earlier concerns about the state of the market being explained away as “over reaction”).
But, beware, because it is a fact that, until it changes, the market is still in the early phase of a stage 4 Downtrend which, by its very nature, will follow through with more declines in share values after the bounce. It has happened before -
Click on the cart to enlarge it
It is likely that the FTSE 100 will fall to test the strength of the support at the 4782 level again at some point. If it should close below that level then we can expect more falls and, perhaps, a decline all the way down to the 3475 level again.
So, enjoy and benefit from any sustained bounce that the FTSE may provide over the coming weeks but remember it is in a Downtrend as its dominant trend and that it will, therefore, fall back again.
In our last ‘FTSE Forecast Report (available on request to admin@sharehunter.com) we showed the likely bottom on the FTSE 100 as at 4782 from which area a bounce back is likely. Here is the long term chart -
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!
The opening two paragraphs of this weekend’s ‘FTSE Forecast’ Report, sent to all ShareHunter subscribers, warned of the danger of a big fall.
The ‘FTSE Forecast’ Report is summarised below – But don’t you think that it would be a good idea to keep yourself properly informed on where the FTSE is heading? You can subscribe for the weekly ‘FTSE Forecast’ and do just that. It is only £12 a month or, of course, you can subscribe for the full ShareHunter Alerts service and get up-to-the-minute top UK and US share tips plus daily stop-loss and profit-protection service. And the ‘FTSE Forecast’ then comes free.
You can join for the full service now by going to our Home page or you can just subscribe for the ‘FTSE Forecast’ by using this link -
https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=8NCBVH3W6UPCE
The ‘ FTSE Forecast’ Report on 10th July 2011 (extracts) -
The strength that the FTSE 100 showed the week before last ebbed away last week and left the FTSE 100 index with a ‘Gravestone Doji’ candlestick. This is normally interpreted as a bearish signal indicating a top reversal and, as the high of the week reached the heavy resistance area at 6055/6090, the creation of a new top has to be considered as a serious possibility.
It could also have serious consequences because, if a top does form, it would be the 4th top and the resulting fall could, therefore, approach being fast and furious -
FTSE 100 Weekly price chart -
Unfortunately, the FTSE 250 is not in a position to help clarify the situation. As expected, it has risen to test the strength of the resistance created by its May 2007 all-time-high value at 12236. From there last week it fell back to create a ‘shooting star’ candlestick pattern which is also normally interpreted as a bearish signal. But, again, conformation from the following (i.e. next) week is required for accurate interpretation
FTSE 250 weekly price chart -
There is not much help, strength or support coming from Wall Street either. The S&P 500 is finding the grip of the 1334/1350 resistance area too strong to escape from and, last week, it too gave a signal indicating the frustration and indecision existing in the market -
S&P 500 weekly price chart -
And, frankly, it is not really worth looking elsewhere in the World for opportunity just now. Much is written about the potential offered by the likes of Japan and, particularly, the emerging economies of China and India. Well, their major market indices are not looking very bright at all and, currently, do not even offer anything like the same degree of short term growth potential that is/might be available from the FTSE and S&P if those two indices manage an upwards breakout from the overhead resistance areas -………continued
Many investors and traders make the mistake of looking at yesterday’s market action to try and get an idea of how it will move today or tomorrow. This is far too short a time frame. We zoom out and look at the long term (weekly) trends as these are the dominant trends that will dictate the overall direction that the market will follow for weeks or months and sometimes years ahead – with all of the daily vacillations being ‘noise’ and impossible to accurately read.
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.
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 old adage is well past its sell-by date as the nature of the stock market has changed, almost out of recognition, from the time that the saying was accepted as sensible; now with 24 hour markets and with internet trading and second by second arbitrage it really just doesn’t reflect of the realities of 21st Century investing.
Then, particularly, why sell and go away when the FTSE might be about to offer a big potential bonus. At first sight this may not appear possible as the FTSE can be seen to be in danger of forming a triple top formation (from which it may crash). This is readily seen from the weekly price chart -
(Click on the chart to enlarge it)
But, in fact, the FTSE 100 is at an ‘Either-Or’ juncture (Either it is going to break upwards Or it is going to crash back). What we now have is the picture of the FTSE showing the potential either for a triple top forming or for the alternative of a 4th attempt at a breakout above the 4 month-long resistance area (and 4th attempts are usually followed by a fast move!).
The daily price chart clearly shows how an “either -or” situation is at hand -
So, either the FTSE is going to burst upwards and give us all a glorious summer (the breakout could be followed by a fast upmove of several hundreds of points) or it is going to fail again and be liable to succumb to the usual reaction to a 3rd top which is to drop like a stone!
Daily prices are notoriously volatile and really do not always show the strength of the dominant trend and that is why we turn to the Weekly price chart to identify the main trend and the likely forward movement of the FTSE that it signals to us. Added to that is the analysis of what is happening on Wall Street as that will usually lead the way for the FTSE to follow.
All this information, and more, is available from the weekly ‘FTSE Forecast’ Report from Sharehunter.
We may not be out of the woods and running clear (upwards) just yet – there is still plenty of potential to cause a major setback and a change in trend – but the market action over the last two weeks has confirmed our earlier analysis that the recent sharp downmoves were ‘normal’ short-term reactions within the dominant Uptrend.
The FTSE 100 has pulled itself back up above its important 30wk Moving Average and, with the continuation of its dominant Uptrend, it should continue upwards towards another attempt to break out above the 5974/6055 resistance area. Such a breakout, when it comes, is likely to be the signal for some fast up moves in share prices as the index enjoys the sense of freedom after such a long battle to achieve the breakout.
(Click on a chart to enlarge it)
Over on Wall Street, the S&P 500 has confirmed our analysis by signaling an end to the recent pull back and a return to increasing stock prices in line with its dominant trend (the Uptrend) -
The S&P 500 is rising, and gathering momentum, for another attack at the 1334/1350 resistance block. If/when it manages a breakout above 1350 then we can all look forward to some fast increases in share prices on both sides of the Atlantic.
The DJIA simply confirms this scenario as it has recovered and is now putting in another attempt to break above the 12300 resistance level -
US tech. stocks could also soon offer some fine growth opportunities (again) as the Nasdaq 100 manages to break back above the 2324 level resistance. There is a nice big ‘open’ resistance-free area above 2324 which could provide some exiting returns -
All in all then things are looking potentially quite rosy for share buying – but the emphasis, for the moment, has to be on the word ‘potentially’; each one of the major indices has resistance closely overhead and each has previously succumbed to and fallen back from that resistance. A second, or third, attempt to break above it could result in another sharp fall back rather than success.
Take care.
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