If you follow my Tweets you may have heard me mention a Triangle on the FTSE100. The Chart below from the wonderful ShareScope shows this Triangle with the Topline being the Red Downward Sloping Line from around the 7100 Peak last year and the Bottom Line is the Red Horizontal Line at 5900.
If you think that’s bad, it gets worse. The theory is that the Price will fall by the equivalent distance to the ‘Height’ of the Triangle. Now of course this depends on where you measure from but if we take it from around 6800 from last August, this means the Height is about 900 Points (6800 minus 5900). If we now project this down, it means that the FTSE100 might be heading for 5000 (5900 minus 900 points). So you can probably see why I am a bit nervous and moving into ‘Capital Preservation’ mode.
There is an alternative interpretation where the Height of the Triangle is 7100 minus 5900 - this would be 1200 Points which implies a Downside Target of 4700. Yikes.
In addition, the 200 day and 50 day Moving Averages are pointing down - the 200 day is particularly worrying as this signals a Downtrend. For the Bulls to take control, we would need to see the Price up above 6500 - I will be stunned if this happens. It is a classic Chart Pattern where we get a big fall, followed by a Sideways Range and then a break to the downside - this is exactly what seems to be happening on the FTSE100 now.
I am expecting a bit of a bounce in the short term and I will use this to reduce my Exposure if it happens.
The Chart below shows the Long Term Uptrend on the S&P500 and my Blue Arrow points to where the price has fallen out of this Channel - that’s a bearish development.
Right, that’s shallots - as per my scribbles, I am very cautious now and I have my eye on the bigger picture of the Brexit Vote later in the year and it is hard to see much upside now. If you look on my Homepage at the ‘Weekly Performance’ bit, I have written more on my Strategy.
Be careful people, this is no time for heroics, cheers, WD.