It seems I might have been right to sound a note of caution in my last post about Mr Market doing the opposite of what the majority expects. Back in August I was looking at the possibility of the FTSE staying range-bound between 6000-6800 and falling back after hitting the top of that range, and it looks like that might be about to happen even though it has taken a lot longer than I expected. The index finally poked its nose over 6800 last week and then turned sharply down a few days ago. The commentariat have been very bullish for a while now, but, when everyone expects the market to continue rising, it means that there are no new buyers to push prices higher, so they fall. The good economic news is all in the price, so there is only one way for the index to go – down – when doubts creep in.
I still think that the market could go a lot higher in the longer term – the sovereign debt crisis could drag on for years yet before finally blowing up, but my short term forecast is for a dip to 5800 before the FTSE finally manages to breach 7000 for the first time, at which point we could see a good surge.
