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Monday, March 11, 2013, Marketing Communication
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FTSE 100, Daily
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In the past couple of weeks the FTSE had posted some minor profit taking. However the price action in recent days has lifted the index back to fresh multi year highs and the index has maintained the near term bullish trend, black line.
The RSI over this period has posted bearish divergence, as higher highs in price are not matched with higher highs in RSI, upper red lines. What is interesting however is that since then it has posted an RSI Positive Reversal, Gold line. Positive Reversals often occur after bearish divergence, as in this case, but rather than confirming the negative outlook of the bearish divergence it actually signals significant buying pressure.
The underlying logic is quite simple, essentially it highlights that RSI in the past few days has posted a lower low. This has followed the RSI Bearish Divergence, so we would fully ‘expect’ the FTSE 100 also to have posted a lower low in price. It has not as it has posted the bullish trading range, red channel. This is positive divergence. The fact that this has occurred at the RSI 50 level also helps the bulls believe that the underlying buying trend remains in tact, and that once the near term nervousness has passed the FTSE 100 has higher to go.
In the past few days the FTSE has again pushed onto fresh multi year highs. The S&P looks set to match the Dow and post record all time highs of its own.
So in summary the FTSE has posted some sharp moves higher from November, and seems to have moved into some natural consolidation areas, but has just cleared these to the upside. The near term trend remains in place and while the 50 level holds on the RSI, and strong price trend line support holds the outlook remains skewed to the upside, black line. The price action would need to break the November trend line to negate this positive stance.
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FTSE 100, Weekly
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Last updated, March 4, 2013
The graph above throws up a possible Elliott Wave count on the FTSE 100. We can see how from the 2009 lows there was a fairly clear impulse move higher, Black 1-5, followed by a simple abc correction. Another impulse move higher brought us up to the highs of 2011.
From these highs the FTSE appears to have set up a combination correction. With a simple abc, in purple, followed by an ascending triangle c wave, in green. This possible count is giving quite an optimistic upside target limit. As Wave 3 of an impulse cannot be the shortest wave within an impulse. As Wave 3 on this count is less than the height of Wave 1 we know that Wave 5 cannot move further than the highest of Wave 3 without negating this potential count. On this graph this is described by the upper blue line at 7136. This is the height of Wave 3 projected onto the low of corrective Wave e.
Elliott Waves often also throw up resistance and support areas by projecting lines off waves 1 and 3, and 2 and 4. The upper diagonal red line is not intersecting with this upper Elliott Wave target limit until December 2013. So if the pace of the current move from the 2009 lows continues we are not set to test this considerable upside cap until the traditional Santa rally emerges.
So from an Elliott Wave perspective over this timescale there are bullish arguments for a move up through and beyond the al time highs, and that this strength could start to fail early in 2014. The highs of corrective waves b and d could be used as levels to negate this potential count.
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FTSE 100, Monthly
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Text last updated, February 4th, 2013
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, first 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, converging black lines. 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.
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. Moves under the longer term trend line, far right red diagonal line, could trigger the start of a more significant retracement, as seen with the breaks lower in 2001 and 2008. The breaks above the 2011 highs have opened up more optimistic long-term targets, with moves up to the 2007 highs now seen on the cards, while the strong longer term trend holds.
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S&P 500 Graph, Monthly
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The S&P monthly graph is uploaded to show how the broader US index index is within touching distance of matching the Dow and posting fresh all time highs.
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Nikkei 225, Quarterly, Semi-log
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Text last updated, December 3rd, 2012
Enclosed above is a quarterly graph on the Nikkei. We include this for those readers who may simply assume that all major stock markets are in a perennial bull trend, with only temporary bearish aberrations. This shows that G7 nations can be, and indeed some have been, in major bearish trends for over 25 years.
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