Shares digital

SIGnet Index (SIGT)

The non-capitalisation weighted UK index seems generally to be a more easily read measure of the direction of shares than its close relative the FTSE 100. This is no more true than at critical times. It clearly defined the bull market, the lion’s share of which from 2004 was supported on any correction by the trend line we have drawn on the log scale chart. That is until late in 2007, when the line seems to have lost its influence, as bearish momentum divergence that had been clearly evident for much of 2007 continued to influence. Resistance from both the 50-day and 200-day moving averages limited gains and last week we saw a conclusive move downward toward a test of key support at 1,504. This level marks the limit of the downside in 2007 and a conclusive move below it would complete a double top pattern that has been forming over 2007 and would then point to further weakness focusing on 1,300 (a drop of a further 13.3%, which translates to approximately 5,330 for the FTSE 100). Clearly, ahead of such a move, there is some support at 1,400 from previous resistance that capped the market in the spring of 2006. Bulls need to see the index above 1,630 (6.3% higher) which seems unlikely in the near term. The market appears to have significantly further to fall.

Nikkei 225 (NIK)

If you didn’t ever look at charts then it would be easy to be convinced that the Japanese market was the place to put your money in 2008. There seem no shortage of pundits who are shouting this at present. Yet many of them were also rather bullish of it last year and that resulted in losses. The chart evidences why, the long-term bear trend line that we have discussed many times in this column prevented the expected rise in 2007 and the resulting roll over to the downside, which was confirmed as a bear trend in late August, is now approaching a key level of potential support that must hold if the market is to recover in the near term. This level is marked by the downside correction seen in mid-June 2006 and is placed at 14,045. Last week the index slipped to 14,098 and the expectation is that weakness will persist with the result that the index will likely test 13,000 and possibly even 11,715. Technically there seems little to encourage the bullish at present unless, and until, any move above 16,150 can be engineered.