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.

continued for subscribers…Note that the latest channel up intersects with the fan line in early November — around the time Obama is re-elected.  For all their belly-aching about this administration, Wall Street has done exceptionally well over the past few years.

I can easily imagine a small correction here and there over the next month, but I can’t for the life of me see The Powers That Be (TPTB) allowing the market to plunge precipitously until the re-election of the status quo is in the bag.

I would continue to be long FTSE, moving my stops up that channel line until such time as we hit the FL again, at which time we’ll have to reassess.  It’s currently around 589.  If/when it does break the channel, we’ll probably have a back test as in May, but then initial downside potential is to the bottom of the purple channel, currently at 541 — up to 547 by November 6.

Good luck to all.