I got a bit spooked this afternoon whilst flicking through Last Week’s Investors Chronicle because Nicole Elliott ‘The Trader’ was being right Bearish again and talking about ‘Rolling Tops’ and stuff and I think she might have a point. My concern is that if we are going into a proper Bear Market where stuff just falls and falls over maybe 6 months, then the Strategy to address making money will need to be dramatically different. In essence, Buying Stocks will be off the table and Shorting Indexes will be the name of the game and probably shorting individual Stocks as well. I might even sell a lot of Stocks and move into Cash to a large degree.
The Chart below goes back a long way - the Green Line (marked with the Green Arrow) at the Top marks a very Strong Resistance Area which will be almost impossible to get above I suspect and the Blue Line (marked with the Blue Arrow) marks a very Long Term Support Line - this should be Strong but it shows that in theory if we do get into a proper Bear Market, then we might be seeing the FTSE100 down near 4000 - are you prepared for such an event? (I’m not !!)
The Black Line (Black Arrow) and Red Line (Red Arrow) denote an Uptrend Channel that was very significant for about 5 years or so - but recently it broke to the downside as I have covered in Blogs in recent weeks I think.
My Blue Arrow points to the recent Peak from about a week ago - note how the Price fell back when it touched the Red Line - I suspect we are about to see a repeat of this very soon as the Price is coming back up to the Line now. That failure to go higher about a week ago was very poor behaviour from a Bulls point of view - it was a bearish development.
Not really sure why I shoved a Red Arrow in there - maybe when I was mucking around with the Charts I thought that was where the Price might fall to in the very short term if we do see a drop now - around 6200 I guess.
The Black Arrow is more important at this point - it is highlighting the Candle from Friday which has a White ‘Body’ but has a ‘Wick’ sticking out of the top - so it is really a sort of ‘Inverted Hammer’ but not a clean one. Cast your eyes back 5 days and we had almost exactly the same Candle and the Price fell - seems likely this could be repeated.
The Bottom Window shows the MACD (Moving Average Convergence Divergence) - my Black Circle surrounds the Green Histogram ‘Hump’. Note how these Humps tend to precede the Price falling and the MACD graph creating Red Humps. My Red Arrow is an attempt to show that the MACD line has ‘flicked up’ but I tend to find that such flicks rarely have much lasting conviction behind them.
For a clear example, look at my Blue Arrow which points to pretty much the same thing. Note also the Green Arrow which points to an ‘Inverted Hammer’ - I put this in to make the point that once a Price has moved up strongly for a while, any kind of Hammer (Normal or Inverted) is usually bearish. Note a similar effect can happen after falls.
Time to whizz over the Oceans - the Chart below has the S&P500 for most of this year. The Red Line (marked with the Red Arrow) is very reminiscent of the one we talked about on the FTSE100 and the Price is now coming up towards it - it is very important for the Bulls that it can break through and keep on rising. Failure of this to occur on such a critical Global Index really could be the final nail in the coffin for the Bulls and I would start getting pretty concerned. However, the Black Line at the bottom of the screen would be the one to really worry about - if that fails we really are in the poo (and I am not talking Winnie the Pooh and Honey.)
My Blue Arrow is pointing to the feint Blue meandering line - this is the 200 day Simple Moving Average - note how it might act as Resistance to the Price but also note that it has sort of started to turn down - this is not good, for an Uptrend you need the 200 day MA to be pointing up.
Seems like for weeks I have been tweeting out that the FTSE250 and some other Indexes were struggling at the 50 Day Moving Average. I just wanted to show this on a Chart - so here it is. The Blue Arrow points to the Blue Wiggly 50 Day MA line and you should be able to see that it is sort of capping the Price Line. Another Bearish development is the ‘Death Cross’ that has occurred as the 50 Day MA has dropped down through the 200 day MA - marked with the Black Circle. I note some of the other Indexes have improved but these things can overshoot so they might not be in the clear yet - the AIM Allshare springs to mind.
We have a similar situation here with Moving Averages capping Price moves. My Blue Arrow is pointing to the 200 Day MA (wow, that has been some Downtrend !!) and note how the Price Candles are still not getting above it. Indeed, my Black Arrow sort of points to the Weekly Candle from last week and it looks pretty ugly with a Big Down Week.
All I read about constantly is how Gold is going up. It may well be, but any such talk is premature until the Long Term Downtrend is broken. My Red Line is my best approximation of where the Top Line of the Downtrend Channel is - and we still have not broken through.
OK, I think I have scared enough People for one night, WD.