The Dow currently stands at 8280, down from 8763 at the time of my last column, and FTSE is now at 4236, down from 4438. I do not see these moves as being a resumption of the bear market, merely corrections in the early stage of the new bull market signalled by the Coppock indicator. I mentioned in my last column a large potential head & shoulder bottom forming on both markets, and the recent decline fits in with that scenario. The summer months are usually up and down, and so right-hand shoulder formation over the next few months would be perfectly reasonable.
That is on the bigger timeframe covering the last nine months. Over the last two months, the Dow has formed a small potential head & shoulder top, and is more or less sitting on the neckline. If it goes through, we could see a further fall of about 500 points - the height of the pattern.
Interestingly, even if it did this, the big picture wouldn't be changed, and in fact this would again fit in with right-hand shoulder formation for the large head & shoulder bottom. FTSE of course will follow down if that happens, but again it will simply be on course to form a right-hand shoulder for it's own head & shoulder bottom.
Because both potential head & shoulder bottoms are very deep, the right-hand shoulders can be deep as well, giving plenty of leeway for there to be substantial declines which still do not alter the overall picture. This, however, is conjecture right now, and it all depends on whether the small head & shoulder top completes by breaking the neckline. If it doesn't, then the picture turns decidedly bullish because incomplete head & shoulder tops (i.e. ones which don't break the neckline) are strong continuation patterns in the short-term.
I hope that's clear. The small potential H&S top is in the short-term, the bigger potential H&S bottom is in the medium-term. There's no contradiction here, and this is an important skill - being able to separate timeframes. I'm calling them "potential" because neither has completed yet by breaking the neckline.
Oil duly reached and exceeded my $70 target, and £/E has edged higher to around 1.17 and still looks on course for my target of 1.25. I still like the look of…