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Nadeem
Veteran Investor
Joined: 11 Jul 2004
Posts: 639
Cash Points ££ 13955.74
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 Posted: Sun Nov 12, 2006 12:18 am Post subject: FTSE100 and Dow Jones show signs of having Peaked |
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FTSE100 and Dow Jones show signs of having Peaked following US Elections
The US Mid-term election has come gone, with the stock markets having on cue rallied into the election, now post election the stock markets are starting to waver and could be heading for significant sell off during the traditionally strongest period for stock market gains. Many novices and professionals alike have taken the recent rally to beyond 12,000 in the Dow Jones and to above 6,200 in FTSE 100, as a sign of a Bull Market breakout and a signal to buy.
Seasonally, late October through to April is the the best period for world stock markets as measured by the Dow Jones Industrial Averages and the FTSE100. Add to that the 4 year US election cycle, which further reinforces the bull trends case going forward. There is a problem with this scenerio, and that is that there was no decline from September through to October.
Why would an expected market decline from Sept to Oct not occur ? Why ? Because most people were expecting it to occur in line with the seasonal expectations, as occurred last year. Similarly the US election cycle has now been well publcised, but since following the pattern on cue for much of 2006, the Dow Jones diverged from the expected price pattern from late August 06 (As per the article of 22nd October 2006 US Presidential Cycle Mid-term Election and the Stock Market).
The economic situation in the USA continues to deteriorate, as the housing market continues to fall, and growth forecasts again being revised lower. This so far has not been reflected in lowered earnings expectations going forward, which implies that the US Stock Market will be in store for earnings shocks going forward. Similarly in the UK, which following the latest base rate rise in response to inflation will slow growth and companies earnings as further rate rises are likely during 2007.
On the technical side, the new high in the Dow Jones has not been confirmed as per Dow Theory ie. the Transports have not hit new highs, and many of the other stock indices are trading well below their previous highs, so there has been little technical confirmation for the breakout in the Dow Jones.
Thus far the breakouts to new highs have not had follow through, on the contrary the picture being painted is that of failure. This now strongly suggests that the opposite to the seasonal trend is likely to occur, instead of stock market gains, we can expect losses, resulting in an aggressive decline in both the Dow Jones and the FTSE100.
A 50% retracement of the move from the June Lows to recent highs would peg an initial target for the Dow Jones of 11,450 and a target for the FTSE of 6,670.
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Wade
Saving Enthusiast
Joined: 17 Feb 2005
Posts: 185
Cash Points ££ 2569.94
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| Posted: Mon Nov 20, 2006 3:04 am Post subject: |
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| Well, you may be right on the FTSE so far, but the dow looks like its headed much higher |
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Quinn
Saving Enthusiast
Joined: 06 Feb 2005
Posts: 181
Cash Points ££ 2817.02
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| Posted: Wed Nov 22, 2006 3:22 pm Post subject: |
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| I agree the FTSE is showing signs of peaking, though it may yet have an end of year christmas rally so it may be a month or so early to call the peak. |
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Nadeem
Veteran Investor
Joined: 11 Jul 2004
Posts: 639
Cash Points ££ 13955.74
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| Posted: Mon Nov 27, 2006 9:20 pm Post subject: |
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| The FTSE falls to 6050 today, it is now about half way to its target of 6050. |
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