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FTSE 100 Index (UKX)

Looking at the daily close line chart here gives us a simpler view, demonstrating that momentum has been diverging positively against price action since the recent closing low of 5,414.4 seen on 17 March. This, combined with support from the lows seen on May and June 2006, has helped prompt the bounce we have subsequently enjoyed, with the index punching through resistance from its 50-day average and seemingly on the way to a retest of the 6,038 to 6,087 zone. This area would take the index up to another test of the neckline of the large double top pattern that developed on the chart during 2007, which itself targeted a test of 5,338 on a closing price basis. Such a move would also come close to testing the descending bear trend line draw off the peaks in October and December and which now forms the return line of a bear channel, the base line of which we have recently bounced off. We must guard against thinking that the bears have been put to flight quite yet, in protracted bear markets it is quite usual to see several vicious ‘bull trap’ up moves that seem designed to suck in the optimistic punter just ahead of the next sharp down move. Bulls should be patient ahead of a close above 6,100, bears could well consider current gains as an opportunity to sell into ephemeral strength.

Gold in US$ (London PM)

We last discussed the precious metal on 28 February. As I wrote that column, the price was at $948 and the prognosis suggested that a top could occur if the metal hit $1,042, the flag extension target following the breakout from this mid-move pattern seen at $806.14 in mid-December. In the event the metal briefly touched an intraday high of $1,033.90 and as the influence of bear momentum to price divergence finally took hold, has subsequently dropped by over 12% to an intraday low so far of $876.30. Clearly this move has breached support from both the influential 50-day moving average and the bull trend line drawn off the lows seen in August and December of last year. This is the largest contra-trend move we have seen and is now testing support from minor congestion close to $877. While a move and close above $906 would re-ignite bullish sentiment and offer the possibility of a re-test of the recent $1,033.90 high via a test of the broken bull trend line currently at $940, a further drop below $866 would suggest a full retracement back down to November’s $781 low and the pressuring of the still rising and all important 200-day average currently near to $793.