Sometimes in the life of a technical trader things don’t quite make sense. As I sit and look at my analysis of the FTSE 100 it’s quite clear that the overall picture is bullish. Both the weekly and daily charts are screaming at me to go long and yet something is preventing me from doing this.
Since March ‘09 the market has risen nearly 50% from a 6 year low of 3,460 to a close today of 5,165. If the ‘trend really was my friend’ then my next move would be a no brainer and I’d be piling my cash into further moves North.
So why the reticence?
Aside from the obvious fundamental concerns around the global economy a simple analysis of historical Support and Resistance suggests there are some significant resistance levels on the horizon. During Mid-July to Mid-September 2008, the FTSE oscillated between 5,071 and 5,650. In this latest Bull run, these levels represent the next significant challenge for the FTSE (see graph below).
The market is now back to the levels it was just before that fateful period in Oct 2008 when it fell 27% in 22 days from 5,052 to 3,665 and the last couple of days has seen a consolidation as profit taking takes place.
I would expect further consolidation over the coming days, weeks and possibly months, and with the momentum on the daily squeeze reducing and stochastics overbought, I’m standing aside until I see evidence to the contrary.
well mate, if you don’t get in there, you won’t make any money. Get long! it’s going up!
Daniel, this is the trouble with pure TA. I agree consolidation is likely, and desirable. However, to think of a potential move back to October or March lows is I think, unlikely, to say the least. At that point the market was pricing in Armageddon – we know that isn’t happening now, and so I think we’re not going to see those levels again. I do think the market will at some point correct, probably up to 10%, in other words, just sufficient for people to think that stocks are cheap and to start buying again.
Again, this is also a problem with short-term trading, in that you need moves to be all or nothing. Investing is a lot easier – while it’s better to time the market to perfection, you can get round that to a degree by drip-feeding funds into the market. I’ve been very successful through most of this year having adopted this strategy.
Hi Steve, I agree that we are unlikely to hit the lows of Oct 08 / Mar 09. Even from a pure TA perspective these lows have very low probability of coming into play in the short/mid term. It’s interesting to get a more considered long term approach from someone who is clearly more of an investor than myself.
There is certainly a very different mindset between swing trading and investing – a mindset that I have not yet considered or developed as part of my approach to the markets.
I feel a couple of guest blog posts could be on the cards?
Hi Dave,
Thanks for your comment – I agree I can’t make any money standing on the side – I also can’t lose any
What makes you convinced it’s on the way up?