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FTSE 250 (Excluding Investment Companies) (MCIX)

Since the index of second tier UK stocks peaked in May of last year, we have seen a decline of no less than 25.5% in its value to the recent 9,565.3 low, seen toward the end of January. In doing so it tested the preceding bull channel width extension target and came close to the 38.2% retracement of the 2003 to 2007 bull market move at 9,430. Though there has subsequently been a 12.5% corrective upward bounce, this move has not managed to attack, let alone climb above resistance that lurks just above 11,000 and which terminated gains in the autumn. As we stated when we last discussed this index in early February, these levels would be key to raising genuine bullish hopes. Now that the minor trend line that had been supporting this rise has given way, there seems every chance that the index is headed back below 10,000 once more. Of major importance will be what happens as the previous recent low is approached. Should the index remain above this level then bulls may yet triumph. However, moves below 9,430 would lead to the inescapable conclusion that a huge head and shoulders pattern had then completed that would predict a further drop of some 3,500 points, taking the index back to 6000. Initial downside targets would be the June 2006 low at 9,100 and the 50% retracement level at 8,372.

Platinum (London Bullion Market) in USD

Occasionally an almost textbook chart leaps from the screen. Platinum looks to be just that at present. Clearly we have been in an extremely long bull trend, the metal has risen in dollar value terms by almost four and a half times since our chart commenced in mid-2002. Of course some of this rise has been due to the persistent weakness in the dollar. The metal’s sterling chart is very similar in overall shape. The key thing to notice is the near vertical assent that we have seen since the turn of the year and which has taken the price well above the dominant bull channel return line. This screams that we are currently seeing a classic market blow-off characteristic of a bull market final move, as a feeding frenzy of irrational buying leads to unsupportable gains. If so then given our recent commentary on the price of gold, this should not overly surprise. The downside potential seems significant even within the context of the longer term trend. Indeed the bull channel support line is currently significantly lower at $1,365. Initially look for the expected selling to test support at $2,015, $1,865 and $1,742.