[StageAnalysis]

The following article is the latest article by our sponsor Alan Saunders from Sharehunter.com who provides a daily stock alerts service via email based on Weinstein’s trader method for the S&P 500, Nasdaq 100 and the FTSE 350 stocks.

THE FTSE FORECAST - as at 13th April 2014

I am starting this week’s report with the main Wall Street indices as that is what so much ‘chatter’ has been about last week as reported by some US based members of ShareHunter (to whom, my thanks for the feed back).

And I’ll start with the Nasdaq 100 where some bright spark has identified a ‘head and shoulders’ formation and immediately said that this signals a topping out and potential fall.

Yes, here is the potential ‘Head and Shoulders’ formation -

Nasdaq 100, weekly –

   

But it is quite wrong to suggest that this might cause a collapse. Not by itself it won’t!

Let’s draw the chart again and this time look for other actual ‘head and shoulders’ formations –

Whoops there are lots of them -

   

There needs to be so much more apparent from the chart analysis before one can call a market ‘top’ on the basis of a ‘head and shoulders’.

Certainly, a little worry is caused by the fact that the price of the index is now testing the level of its 30wk MA – but, then, one can see that it is in the habit of doing that during its recent (and current) Uptrend.

Then, look at the longer term chart –

Nasdaq 100, weekly longer term –

   

Does that really look as though it is about to top-out and to collapse? I think not. More likely it is making a standard, bull run, retracement back to the joint support levels of its MA and the 66.66% retracement of its controlling feature (which is still the 2000 to 2002 collapse).

Now for the DJIA.

DJIA, weekly –

   

The only weakness that is showing on this index is from the fact that it has not managed to create another higher high. It is still in an Uptrend as its dominant trend and it is still above the level of its 30wk MA which, itself, is rising. This is a bull run and one that is not, yet anyway, showing signs of topping out.

DJIA, monthly –

   

The highlighted area shows the two candlesticks which can indicate a potential change in the dominant trend (one up, the other down and both of equal overall length) but the fact that they were then followed by an upward candlestick negated the negative potential.

The S&P 500, weekly –

Yes, the S&P 500 had a bad week but, again, nothing out of the ordinary and nothing to suggest that the market has topped out -

   

The index has fallen back towards the level of its 30wk MA where it should find sufficient support to rally back again. It has, after all, done this many times during the currency of this Uptrend.

And, look at the monthly price chart –

S&P 500, monthly –

   

Where do you see a signal suggesting a big reversal is due? – ‘cos I don’t! Yes, it could retrace back to the 1564 level of the two highs; that is not impossible to consider but that would be not a collapse just a bull market pause.

Now for the FTSE 100; here, for the first time among the major World markets, we can see a very clear picture of a market which is, really, ‘topping out’

FTSE 100, weekly –

   

1.There is a sequence of level highs; 2. There is a levelling off of the MA; 3. There is a sequence of level lows; 4. The index straddles its MA breaking higher and lower through it.

All 4 signals are classic ‘stage 3’ Topping trend indicators and can and should be applied to the other markets when you are trying to identify a struggling market that is topping out.

And the monthly price chart tends to confirm the topping out picture of the FTSE –

   

by highlighting the potential of a major, long term triple top formation.

Frankly the FTSE 100 is looking pretty sick; a triple top is a much stronger indication of a potential for a collapse than most other indicators (certainly much stronger than a ‘head and shoulders’ for example) and, of course, a ‘stage 3’ Topping trend is very often followed by a ‘stage 4’ downtrend which could, in this particular case, eventually take the index back down to the 3475 area again. Now, that would hurt most (although, of course, we would make hay with short positions on the way down).

We all have to hope that the FTSE 100 does not infect the other markets. It has led the way before and could do so again which is a bit of a worry but, on the positive side, although perhaps grasping at straws, the FTSE’s 30wk MA is not (yet) falling so it could resume an upwards slant plus the index hasn’t collapsed yet despite failing innumerable times to break out into new high ground – perhaps it will achieve that in the near future.

Alan Saunders
Chief Analyst, ShareHunter.com
April 2014

Thanks to Alan Saunders for this months article.