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Tuesday, May 28, 2013, Marketing Communication
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FTSE 100, Daily
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Last week we stayed bullish in the near term, over the past week the buying interest has remained robust. The market posted a brief sell-off towards the end of last week, but the strong performance today suggests the ‘buy on weakness’ theme of recent week’s remains in force.
We mentioned last week how the FTSE remains in an extremely positive trend from the April lows, and that this bullish mood will only be broken on a confirmed breach of the near term trend line, blue line on graph. On this graph we have thrown up a parallel trading range from this blue line and over the recent impulse move higher, dark red channel. We can see how on the moves up towards the all time highs the price action broke above the channel, moving up to the upper end of the more medium term bullish trading range. Following this throw-over the price action slipped under the near term support, only to recover today. If the proposed near term Elliott Wave count is correct we would expect the wave 5 ahead to once again test the all time highs on the FTSE.
Traders have long noted that markets rarely move in one direction for more than 10 days in a row, so the continued push higher to fresh multi year highs last week, did start to look vulnerable to some profit taking, Moves towards 6400, the lower end of the medium term trading range would have been quite possible, so the relatively muted sell-off is a sign that the buyers remain in force. Much of the recent sell-off was triggered by the Asian markets, where the Nikkei has almost doubled in just the past 8 months, the resultant sell-off so far appears to be understandable and justifiable consolidation of these extreme gains, graph below.
The recent low on the FTSE at 6640 can now be seen as major near term support. The recent buyers are not seen getting too nervous while this level holds, leaving the buy on weakness stance in place. Looking for a renewed push back to the recent highs, breaks under 6640 are needed to turn more bearish.
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FTSE 100, Weekly
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Last updated, May 2013
The graph above throws up a possible medium term Elliott Wave count on the FTSE 100. We can see how from the 2009 lows there was a fairly clear impulse move higher, Red 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. Where a simple abc correction has been followed by an ascending triangle c wave, (ABCDE). 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 wave of higher degree. Wave 3 on this count is less than the height of Wave 1, so we know that Wave 5 cannot move further than the highest of Wave 3 without negating this potential count. This level is up at 7136. This is the height of Wave 3 projected onto the low of corrective Wave e.
So from an Elliott Wave perspective over this timescale there are bullish arguments for a move up through and beyond the all 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 stop areas to negate this potential count, or the 2011 highs could be used for the more cautious. Also of interest is how the recent sell-off on the daily graph barely registers on the weekly chart.
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FTSE 100, Monthly
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Text last updated, May 12th, 2013
The monthly timescale naturally takes the long term view so the commentary in this section will only be updated as and 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. From 2009 the FTSE has posted a strong recovery and currently is posting moves up to its all time highs, moves already posted by the S&P 500, Dow Jones and DAX. The FTSE has broken the upper bearish trend, black line, and continues to look set to follow the S&P 500 by posting a move up to its all time highs around 6950.
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. But while the resistance from the 2011 highs have been cleared, more optimistic long-term targets have been opened up, with moves up to the all time highs now seen as most likely, while the strong longer term trend holds.
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S&P 500 Graph, Quarterly
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The long term S&P monthly graph from 1930-2013 is uploaded to show how the broader US index has now moved up to post fresh all time highs, following the trading from the TMT led highs posted in 2000 and matching the moves posted in recent weeks by the Dow Jones Industrials Average.
The buying from this initial break has been strong, posting a clear and positive break of the previous highs, and the previous trend, black line.
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Nikkei 225, Quarterly, Semi-log
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Enclosed above is a quarterly graph on the Nikkei. We include this for those readers who may 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.
This graph also details the spectacular percentage gains posted by the index over the past 12 months, moving from 8,000 to 15,000 in under 12 months, pulling the index up through the upper end of the long term bearish trading channel, and also opening up its 2007 highs.
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Nikkei 225, Daily, Semilog
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This week we enclose the Nikkei Daily graph, which describes how the recent sell-off while sharp in nature has not broken any significant technical levels, and appears rather muted in comparison to the extreme gains posted in recent months.
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