Shares digital

SIGnet Index (SIGT)

A month ago we took a look at the alternative measure of the top 100 UK shares. In the past it has been a useful guide to assessing the overall trend and this time was no exception. Having newly broken the long time bull trend line that had held corrections in the market since the summer of 2004, we were bearish and subsequently we have been proved right with the market easing toward a close test of support that we highlighted coming from the the 2006 spring highs near to 1,400. In doing so the market has now confirmed a large double top formation and though recent consolidation has seen minor gains back up to test the neckline, so far the bearish scenario that such a large and dominant pattern foretells has not be scotched, pointing as it does to a target of around 1,300, some 13%-plus below current levels. Only if the index were to close above 1,520 would there be reason to review this expectation and consider further gains toward 1,550. Though even such a move would not break the bear trend line now on the chart.

NASDAQ Composite Index (IXIC)

The US NASDAQ market has been in decline now for over three months since it peaked at 2,861.5 around the start of November and has lost some 23% in that time. However, this has to be taken in the context of the bigger picture for the index. As the chart clearly shows, there has been a long term bull channel that has dominated the index and draws its origins from the lows seem in August 2004. The recent decline has come to rest, for now, on the base line of this channel (currently at 2,254), with an intra-day test of previous congestion close to 2,220. Given that the index blew the top of the channel significantly last year, symmetry might be expected to dictate a similar out of channel excursion through the base line toward the July 2006 lows of 2,012. This bearish scenario is enhanced by the suspicion that the index is currently forming a bearish pennant, a pattern that we have discussed previously and which usually marks a mid-point resting phase in a move. So unless the index can form a base close to current levels, which would likely be heralded by the bear trend line on momentum being breached, a move below 2,254 would suggest further significant weakness should be expected. Bulls would be well advised to await a move above 2,490 before getting excited.