Possible market reversal signal?

[RogerM]

Perhaps it's worth a closer look at the UK market chart. Remember that this is an unweighted composite of the constituents of the Allshare, and is shown alongside the FTSE-100 cash. It's beginning to look interesting. Although the market chart has made new lows, these have not been confirmed by the Advance decline Indicator (AD Ind), VP trend and the Hi/Lo indicator. All 3 of these have started to rise, and are diverging from the trend of the UK Market chart, indicating that there may be underlying strength. These indicators have been relatively reliable in the past, and I used them to warn of the current correction on 25th May, shown by the solid vertical line on the above charts. This signal is being called a little prematurely, but it just might be indicating that a reversal is imminent. What is not clear is how large or how sustained any reversal may be. At the moment I am just using this as a "frame of mind" indicator, and I'm prepared to turn bullish rather than perpetuate the bearish mantra!

 

[darth trader]

Nice post Roger. I will look forward to seing the result of the poll.

I was a bear for a long time and changed my mind a few months ago. I expected to revisit these lows and believe that the market is poised to go from here.

A lot of stocks have been consolidating over the last 4-5 weeks and getting ready for a big move - in one direction or the other.

Things are bad out there but you just can't beat the Fed. Greenspan is going to do whatever it takes to kickstart the economy - you can see this from recent charts. Despite their bearish looking nature the market rallied whenever Greenspan pulled changed the levers. IMHO it's nothting to do with Greenspan being KIng or the US public being fools - there is just too much at stake and he will achieve his aims even if it means pumping dollars into the market again.

 

[RogerM]

As I read elsewhere, not many have got rich by betting against the US economy. I am about 40% invested at the moment, which is as far as I am prepared to go in this market, and all this in non-techs which have some defensive quality and track record of uninterrupted earnings growth. Also I don't think it is necessary to try and pick the bottom - I am prepared to miss out on some of the potential gain if I can jump on board an uptrend with some degree of certainty and take a chunk out of the middle.

Certainly not much evidence of a bottom this morning, and for the reversal signal to be really valid we need support at the low in the market chart and a new higher low on the 3 indicators I have chosen, and which have given good signals in the past as the divergence between each of them and the price chart, which was evident at previous turning points, show.

Also these signals, even when valid, can be premature. The top that I called on 25 May was followed by a dip then a strong rally before finally falling away as forecast. But the divergence in the indicators had been building for over a month before the drop. So, caution as ever, but let's not forget that the turning point nearly always coincides with the worst news, and even the anticipation on what is feared will be the worst news.

What I would really like to see to confirm the bottom is for there to be a modest rise on bad news, just as falls on good news flagged the top.

Have a happy day!

 

[RogerM]

I think we are at a critical point so far as the FTSE100 is concerned. Wednesday's close was 5 points below the lowest point reached in March. Yesterday saw a rally which weakened thru the day, although every time it dipped below the March low there was a recovery and the close was above the March low. The second half recovery in the Dow yesterday bodes well for today. The market breadth data also indicates a turning point. There seems to be support at this level and we may just have turned the corner for the time being, although whether this is THE bottom is still anyones guess. But so far so good. Roger.

 

[darth trader]

agreed roger - IMO the market is coiled up like a spring and I favour an upside break however some of the EW counters are still talking of short term downside before a rally begins.

 

[shelman]

On working lunch today (BBC) a City guy was talking about severe market corrections like this one. In each case, going back to the early seventies, the biggest falls came in anticipation of possible recession and strangely the markets began recovery during the actual recession.
The charts supported this.
If history repeats itself do we need to wait for confirmation of recession before we can say the worst is over.
Steve