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Wednesday, August 7, 2013, Marketing Communication
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FTSE 100, Daily, Semi-log
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The divergence between the S&P 500 and FTSE 100 continues. The FTSE 100 graph above details how the UK index has struggled in recent weeks, and has moved back down to the near term lows. While the S&P 500 has continued to push higher, posting fresh all time highs this week.
The FTSE has posted a Failure Swing where price action has posted a near term high, while the Stochastics has failed to match this higher high while being overbought. As a result the near term lows, black line, is seen as important near term support, comparable to the level highlighted on the Nikkei graph some weeks ago. A break below this support, in conjunction with the Failure Swing, would signal a period of weakness ahead, potentially back down towards the June lows.
While the S&P remains in its bullish trading range the 6516 area should hold. However without this support from the US market the outlook appears to have increasingly bearish implications. So for the near term the focus will be on the S&P 500. Staying cautiously optimistic in the interim.
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FTSE 100, Weekly, Semi-log
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Last updated, June 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 expanded flat abc correction.
From these 2011 lows the FTSE has posted the start of a new bullish impulse wave higher, with the current price action in Wave 4. Elliott Wave rules dictate that if this count is correct on any future weakness the FTSE cannot move into the range of Wave 1. As a result we would expect significant support from the Wave 1 highs, Gold line, which coincides with the psychologically important level at 6,000.
This also suggests that Wave 5 ahead is set to post moves above the highs posted in May 2013. So using this count over the medium to longer term there are bullish arguments for a move up through and beyond the all time highs in the months ahead, and that this strength could start to fail early in 2014. 6,000 can be used as a level to negate this bullish count. On the graph above we have also highlighted an RSI Failure Swing, Black lines, where the recent fresh highs, have not been matched by higher highs in RSI. This does suggest that the strength of buying earlier in the year was not as robust as we would like. This does flag up some more medium term risks that could see the FTSE drop down to its medium term trend later in Q3, red diagonal line.
So in June the FTSE dropped down towards some major support areas, and bullish trend lines, which attracted buying interest from the longer term players. Moves under the 6,000 area would start to create more serious downside concerns, while with the recent leg higher, off this pivotal support, has to date confirmed the optimistic count.
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FTSE 100, Monthly, Semi-log
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Text last updated, July, 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 on the price graph. 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 broke 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 has 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, Monthly, Semi-log
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The monthly graph below details how the S&P 500 has posted record all time highs on the recent moves, setting a bullish backdrop for the European markets.
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S&P 500, Daily, Semi-log
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The S&P has recovered from the June sell-off to post fresh all time highs. The recovery has moved the index back into the previous positive trend channel, red channel. While this trend channel holds the outlook for the FTSE 100 and Nikkei 225 will remain optimistic.
We suspect that traders will use the trend on the S&P 500 to dictate their mood in the coming days, bullish for now, ready to take profits on a break lower.
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Nikkei 225, Daily, Semi-log
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The Nikkei has just dropped under its previous bullish trading range, grey region, and as on the FTSE the concern is that a move under the near term support, black line, at 13560 would increase the risk of a short term leg lower back towards the June lows.
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