Around the horn with major indices and currencies… Like SPX, most are at a threshold where they must either break down or break out (I think “break down,” but we’ll know soon enough.)
Coming up: VIX, RUT, COMP, NYA, NDX, DJIA, FTSE, SPX, DX, EURUSD, USDJPY, AUDUSD, CL, GC, SI. And, yes, I’m happy to take requests — first come, first served after the above are done.
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VIX
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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.)
In so doing, it completed another rising wedge, which led to the latest drop. Note, however, that it fell to the bottom of a well-defined channel that dates back to June.
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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ORIGINAL POST:
In response to several requests from readers across the pond, I’m taking a crack at the FTSE 100. For some reason, Think or Swim (my trading platform) doesn’t quote the FTSE itself, but does the FTSE 100 mini — 1/10 of FTSE’s value — that goes by the symbol UKX.
UKX had retraced a little over .786 of its 2007-2009 plunge when it topped in February 2011 at 609.58 (.786 is the normal completion point for a Gartley.) It subsequently fell 20% to 486.86 last July, then retracing about .886 to reach its recent high of 598.67 in March.
The April 2010 drop came at the Fib .707, which isn’t a legitimate Point B for a Gartley. The harmonic implications of a .707 Point B are a Bat pattern that completes at .886 (635.84) or a Crab that completes at the 1.618 (874.90.) We’ll put a pin in 635.84, because its not that far from the current reality, and see if it lines up with any other indicators.
Besides the harmonics, a couple of patterns are worth examining. First, fan lines from the 2007 top (yellow) and 2009 bottom (purple) have been pretty effective at guiding prices. At present, there’s a purple fan line that — if it holds — should help support prices. If it fails, watch out for a 10%+ drop.
Secondly, the faint red channel lines that have provided a lot of support and resistance in between the fan lines are indicating possible support at the same spot.
Third, the weekly RSI chart shows support at these levels (the dashed yellow line above.) Breaking this line is a virtual guarantee of 8-10% more downside, but it did a pretty good job of supporting previous slides, even without the added benefit of a fan line.
Likewise, the daily RSI should offer support. Even though RSI has fallen in a pretty steep channel over the past 7 months, there are two internal trend lines (purple and yellow above) that intersect with current values that could be supportive.
Don’t get me wrong: I am not bullish on the FTSE. But, it’s important to recognize that it has reached a critical level of support according to several different measures. The economic picture is bleak, so any little nudge could send it tumbling into the abyss. In fact, I view the entirety of the euro zone as only one press release away from financial disaster.
But, if it’s able to hold on, we could see a decent rebound. Holding on no doubt means cranking up the printing presses — a game that is doomed long term, but one which TPTB have shown they have reservations about playing.
When faced with situations like this, I usually punt. There’s not a compelling enough reason for me to place hard-earned cash at risk until the picture is a little clearer. But, we’ll keep an eye on it, and see if the picture clarifies in the coming days.
