FTSE 100, Daily, Candle
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Last week we felt that the FTSE was looking solid in the near term trading range, red region, and that the probability looked highest for a continued move to the upper end of this channel. So the moves in the past few days have been largely as expected.
What is interesting is how the FTSE remains well under its 2011 highs and even under its March 2012 highs. This is interesting as the S&P 500 has broken its 2011 highs, and is now just 100 points under its all time highs around 1565. Simple Dow Theory tells us to remain cautious while two major indices fail to confirm higher highs. So while the FTSE stays under its long term resistance we feel the UK investors remain less confident on the outlook. This outlook naturally will be affected by the more active QE in the US, when compared to the Bank of England, and the resultant impact on sterling.
This notwithstanding we would still classify the FTSE as being lifted up by the S&P 500, rather than the FTSE 100 powering on upwards under its own momentum. However we would still suspect that the FTSE is likely to follow the S&P 500 and post fresh multi year highs in the coming weeks. The longer term question is whether the buyers will start to dry up if/when the FTSE manages to break back above the 6,000 area. We would suspect that investors would become increasingly nervous on such a move and we would expect to see funds switching funds into other asset classes on any such break higher.
In summary then the FTSE has continued to post a solid H2 recovery and the index remains in a strong near term bullish trend, red region. Leaving an optimistic view for the remainder of Q3, for now. Breaks under the trading range would be required to turn more negative. Current levels do look vulnerable to some profit taking, however shorting here would be unadvisable due to the strong underlying trend. 6,000 is looming, after an expected near term spell of profit taking.
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FTSE 100, Weekly, Candle
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Last Updated, September 10th, 2012
The situation on the Weekly chart will take some time to change greatly, so the text below may remain broadly same week to week unless major levels are broken. As with the monthly chart below however we will update the graph each week, and post all the text so that new readers will have all the information to hand.
For the Weekly chart we can see how the FTSE 100 has clearly had a hard time breaking up through the 6,000 area over the past couple of years. We can also see how the current price action could well be the price moving down the right shoulder of a 'head and shoulder' pattern. It is much too early to call this pattern formally here, as the neckline would need to be breached, around 4,775, but it is still worth noting as this could result in medium term nervousness. Also in recent weeks the S&P 500 and the Dow have both posted higher medium term highs, suggesting the FTSE is set to do the same, which would of course negate any possible bearish H&S.
Also on this chart we have drawn some potential Elliot Wave counts. With the 2009 to 2011 move being a five wave impulse wave, and the resultant correction the traditional abc pattern. This labelling follows the standard Elliot convention that Wave 4 must not overlap with Wave 1. Also as is typical the abc correction has found support from the end of Wave 4.
One method in using Elliot Waves is to create a trading channel off waves 2,4 and projecting the parallel higher. Wave c of the reaction broke through this support and also interestingly found support off the 50% retracement level, central green line.
While the price action is under the 2011 highs trend followers will be concerned over whether the current trading range, red region, is the start of a fresh 5 wave impulse wave higher, or part of a more complex WXY correction.
So in the interim we can see the current trading range, red region, dominating the trading mood, with a positive bias, with any breaks above the 2011 highs allowing more significant long term upside objectives to be drawn.
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FTSE 100, Monthly, OHLC
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Last Updated, August 13th, 2012
The monthly timescale naturally takes the long term view so the commentary in this section will only be updated as when market events dictate. So regular readers of this report will only need to read the monthly and weekly sections on a relatively infrequent basis. However we include all the information to give new readers the full picture.
The Monthly graph for the FTSE 100 quite clearly shows how the index posted an extremely powerful move into the end of the last century, red line.
From the all time highs in the index at 6950 the FTSE slumped 50% to the 2003 lows. In hindsight we can see this move as an understandable and even justifiable re-examination of the strong gains posted in the previous 20-30 years. The market currently remains well above these lows, which tells us that the Eurozone sovereign debt issues, technically at least, are not as significant as the general press would have us believe.
The FTSE remains in a trendless state, having posted lower highs in 2007, and higher lows in 2008, black lines. The retracement levels calculated from the all time highs to the 2003 lows create some interesting levels. We suspect that these levels will continue to be of use for the quarters ahead, a break back under the 61.8% level would suggest a new trading range between 4367-5215 would be possible. This area also coincides with the possible neckline of a major bearish H&S Pattern. Which would suggest strong support seen on any weakness down to 4775.
In summary then the FTSE 100 remains in a trendless state over the long term, with lower highs and higher lows, trading in the shadow of the TMT sell-off. Currently the index is seen to have a downward bias within this retracement channel, towards the 5200 area, (the upper retracement level), but that on any such weakness strong support would be expected and it remains more neutral in its outlook than the more optimistic S&P 500 and Dow.
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Dow Graph, Quarterly
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Above is just a quick chart on Dow, highlighting that despite the wider market nervousness the Dow has pushed on towards its all time highs. This long term chart highlights how the index took a few attempts to break through the 1,000 area during the 1960’s-1980’s. Then posted an extreme move higher to the end of the millennium. This move is all the more powerful as this is a semi-log chart.
Unlike the FTSE the Dow posted fresh all time highs in 2007, so the Dow has posted a long term broadening pattern, compared to the FTSE 100 which has posted a tightening formation over this period.
So the long term bulls will be hoping that the Dow can push through its major long term highs and post a bull trend comparable to that seen in the 1980-2005 period. While bears will feel the index will fail at this current attempt and more closely match the series of failures posted between 1965-1985.
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S&P 500 Monthly Chart
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Updated September 10th, 2012,
On the S&P graph we can see how the broader index has attempted to follow the Dow higher, and has now confirmed the Dow as it has to has post fresh multi year highs. Using basic Dow Theory this confirmation between these two broad equity indices highlights the current positivity in the market.
What is also worth noting is that the US index has posted a stronger longer term bullish trading range, red region, compared to the flatter trading range set up on the FTSE.
So currently the Most bullish index is the Dow, then the S&P with the FTSE bringing up the rear. If the FTSE was able to post fresh multi year highs, confirming the more optimistic US indices, then we could see traders looking to buy the FTSE and selling either the S&P or the Dow looking for this longer term divergence to unwind. However the FTSE would need to confirm the bullish outlook first and this position should not be entered pre-emptively as these conditions could remain in place for some time.
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