Since our last post, UKX did reach our 590.04 Bat Pattern target, slightly exceeding it and an important fan line from October 2007 by 3.22 before dropping 3.2% since the middle of September. But, the correction is likely over — for now. Why?
Like US equities indices, the FTSE has been in a long-term channel up since early 2009. It has also traced out a well-defined harmonic pattern — a Gartley Pattern which completed at the .786 in January 2011.
Since then, it plunged along with world markets in July of that year and had retraced a Fibonacci .886 of the drop by March 2012, only to plunge again and again retraced .886 of that drop by September 14 (our 590.04 target mentioned above.)
I expect this channel to catch the falling FTSE, and for prices to rebound nicely this week. But, investors should use tight stops to play this rebound; a loss of the channel could see a repeat of April 4th — the last time a similar channel was breached.
There’s still the not-so-small matter of the fan line from 2007 (the yellow trend line above.) It intersects with our channel just above current prices, meaning FTSE has to decide whether to continue following this steep channel up or, once again, fall victim to the fan line.
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