UK and US indices have rallied strongly since my last report, with the Dow climbing to 10653 from 10198, and FTSE100 rising to 5332, up from 5132. For the first time in a number of months, there's some clarity following what has been a very tricky period analytically. Both charts now have re-established the overall uptrends which began in March 2009, and I think it's reasonable to say that the bull markets which were identified in these reports last year are still intact.
It is pleasing that observations and comments made in my reports over the last few months seem to have eventually been right. In particular, the apparent head & shoulder top formations, which while impressive looking in terms of their size, just didn't seem to be in the right place at the right time, i.e. I said there was a question mark regarding context. What I meant by that was it seemed too early in the cycle (assuming it was a bull market) to be coming to an end. Context means not simply interpreting patterns in the same way wherever you see them, but also taking into account the relative position on the chart based on time and/or distance. This is a very powerful idea which allows you to eliminate certain patterns which otherwise might lead to incorrect conclusions if simply taken on face-value.
Another observation was that the markets had a number of chances to go significantly lower, and didn't really take them. If you like a "double negative" which equals a positive.
I pointed out in the last report how finely balanced things were, with relatively small swings shifting the probability one way then the other. I think this situation has now resolved itself, and both indices could easily absorb a fair amount of downward movement without altering the overall picture. While the current price action does now provide a much clearer indication of direction in the medium-term, i.e. up, there is nothing on the charts to suggest any particular target. That often happens, and it needn't be a problem, simply having a reasonably clear idea of medium-term direction is sufficient.
Last time £/$ stood at 1.52 and E/$ was 1.26. I said I expected them to move higher in the short-term, which they have to 1.59 and 1.32 respectively, but said I still wasn't convinced about a change to the bigger picture. Well these moves…
