If we start with the London market the recent bullish trend in the FTSE100 was signalled back in July 2010, where we saw a strong bullish engulfing candle on the weekly chart, and since then we have seen a steady and almost uninterrupted run to the end of year close just beyond the 6000 price handle. This move higher has been fully supported throughout by both the 9 and 14 week moving averages, and with the 40 week now having crossed the 200 week, the current trend looks set to continue for most of the first quarter of 2011. The key price level during November 2010 was the break and hold above the 5833 region which represented an area of potentially strong resistance, but once overcome has now become a platform of support, so a strong technical picture is now in place and the next key target is now the all time high at 6754.10 last seen in July 2007.
For those of you unfamiliar with the FTSE100 whilst it is designated as a leading indicator of the London Stock Exchange, it is anything but, since virtually all the constituents of the index are multinational companies earning international revenue and therefore this index cannot be viewed as an indicator for the UK
economy. As such, it is much more of an international indicator and therefore representative of the broader global economy. In addition, the index is heavily weighted towards oil and mining, and with these market sectors showing strong growth it is hardly surprising that last year’s strong trend in commodities has been driving the index higher. My forecast for this year is that we can expect another strong performance from equities and almost certainly see a test of the all time high in due course with a possible breach of the 7000 region and beyond, if this technical area is finally penetrated.
The trading week for equities in 2011 has started relatively quietly, with the FTSE 100 in London closing marginally higher at 5984.33, and closing the week with a long legged doji candle on the weekly chart, which suggests we may see a short term reversal and a temporary retracement in the longer term bullish trend. The pull back on Friday came as no great surprise, following the shooting star candle of Thursday, but it is interesting to note that Friday’s low of 5,973 found good support from both the 9 and 14 day moving averages, providing further evidence that the longer term bullish trend remains firmly in place for the time being. However, the weekly doji candle may signal a break below these indicators early next week, with the longer term outlook still very positive for equities in the first quarter.
The picture for the Dow Jones was broadly similar last week, with the index gaining just over 100 points, and ending as a narrow spread up candle on the weekly chart, with average volume. Friday’s price action on the daily chart was perhaps the most interesting following the market test to the downside, finding excellent and strong support from the 14 day moving average, with the index bouncing back strongly as a result, and ending with a narrow spread down candle with a deep wick to the lower body, suggesting bullish sentiment remains firmly in place. The close on Friday was once again above all four moving averages confirming this view, and given the strong trend of the last few weeks, we can expect to see the 12,000 price level breached later in Q1 this year.