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FTSE All World Index (AW01)
Sometimes it becomes difficult to get a true perspective on markets from their usual indicators, and it pays to look at market measures that are perhaps less closely followed, and as such, are not influenced by direct index speculation to any degree. This week I believe this approach merits a look at the FTSE index that gives a broad measure of the whole world’s markets, because it has made an interesting departure from the bull trend that has dominated for so long now.
The gapped downside move through channel support early this month has lead to a test of the ‘neckline’ of a large double top that has been forming for most of the previous 12 months.
This pattern suggests the index and hence world markets have potential to fall a further 17.5%. Furthermore, the key 50 and 200-day moving averages are about to cross negatively, adding to bearish portents. Only the low level of momentum gives any cause for believing a recovery – of any sort and however temporary – can be a near-term possibility. If the markets continue to adhere to proportionality in the size of their respective up and down moves then any such bounce will be an opportunity to sell into and nothing else.
Dax Xetra Index (DAX)
When we last examined the German index just before Christmas, it seemed that the symmetrical triangle pattern (in mauve) was breaking to the upside. However, I cautioned against a possible false breakout and suggested waiting for the index to move above the 8,136.2 all-time high before going long. In the event the index moved close to this level but did not break above it and has subsequently rotated downward, confirming the false nature of the move. Worse still, it has broken below its 200-day average and failed to hold above support from the long-term bull channel base line.
The symmetrical triangle pattern’s predicted 930-point move seems to be working through to the downside, suggesting a move to 6,630 via possible support close to 7,040. Only the proximity of possible support from the mid-August low at 7,191 and oversold nature of momentum give cause to believe the rate of decline can be halted for now. Any corrective bounce is expected to be temporary and looks destined to find life above 7,760 hard to sustain.