The FTSE has continued rising since my last post and is now well above the 20 day moving average. I had thought it might hit the 20dma and go sideways for a couple of weeks before dropping, but that hasn’t happened. Provided the index remains below May’s high though, I still think the drop I forecast is on. The recent low was only 4% below the peak signal pattern, which isn’t very much, so my feeling is that this decline is not over yet. I suspect that the high will be tested again though, and the dip probably won’t quite reach 6,000 now, but it will get close. The only sticking point with this view is that the conspirators are agreeing with me and that is usually a bad sign!
Looking at the US, the S&P500 is only a couple of points off 2,000 in futures trading this morning and, although I said that there is no real reason why hitting such a level should provoke a sell-off, it has been a much-anticipated event so perhaps it will be a case of “buy on the rumour, sell on the news”. A 10% or so fall could happen after the index pokes its nose over this psychological barrier, before further progress is made. I think 3,000 could be on the cards before the rally is over, as the cyclically adjusted price/earnings ratio is still well below the level seen in the year 2000.
