Predicted FTSE/Dow Correction marks the end of phase 1 of the Bull Market

When I wrote four weeks ago, the Dow stood at 10609 and FTSE was at 5455. I said that:

"As we are close to achieving the targets, particularly on FTSE, it's time to think ahead because we are getting close to the end of the first stage of the bull market"

I suggested that a multi-month range was the most likely pattern we would see next, and went on to say:

 "That range could be around 10% deep, or 500 points, and if you have been in the market enjoying the ride up, now is the time to start thinking about whether to protect those gains"

In the three weeks that followed, FTSE fell to a closing low of 5060, a drop of 9% from it's highest close of the bull market of 5538. That's a 478 point move, virtually spot-on with the above prediction. The Dow is currently at 10099, down from a closing high of 10725. It closed at 9908 at the lowest point of the correction, again a 9% fall.

So does this mean that the worst of the corrections are over? Quite possibly. But I still expect multi-month ranging action, so we could well have the upper and lower boundaries of those ranges in place now. Remember, I see this ranging price action as merely the juncture between the first (now completed) stage of the bull market, and the start of the second stage.

Last time I wrote, £/$ stood at 1.627 and E/$ at 1.438. I said that the E/S chart looked like it wanted to go lower due to the Large Contra Move signal that had appeared on the Point & Figure chart. This it has duly done, and it has fallen to 136.3. I also said that if E/$ fell, the £/$ chart would follow lower, and it has obliged, currently standing at 1.57. Both charts are a bit oversold at present, and we should get a technical bounce, but once the oversold condition is out of the way we should see the downtrends resume. There's more scope from here for a decent move on £/$ as it has just broken our of a seven month range - a significant amount of time. I expect the bounce to be halted at 1.59 which is the underside of the range, i.e. resistance, and then a further move down to 1.48. This fall could be quite fast as there's no support on the chart.

Gold looks very interesting now. Currently at $1093, we've just seen a failed break at $1085, i.e. the price broke below this level, but moved quickly back up through it. Look at the Point & Figure chart and you'll see exactly what I mean. This is a bullish development, and given that the overall picture is bullish anyway, we could be seeing the resumption of the bull market in gold which I've been covering for several months now. If that's the case, the uptrend has resumed sooner that I expected, but that's very welcome and puts this chart very much back in plan.

If you'd like to get started on Point & Figure technique, call me on 0161 428 1069 and I'll send you some literature.

(c) Robert Newgrosh 2010