Technical Market Report 22nd November

When I last wrote, the Dow stood at 9972 and the FTSE100 was at 5242. I reiterated the targets of 11200 and 5725 respectively and the indices now stand at 10318 and 5251. It obviously looks like the Dow has made more progress than the FTSE in the last four weeks, however FTSE did reach nearly 5400 a few days ago and has come off, whereas the Dow has had a much smaller reaction. The FTSE chart still looks fine though, and both uptrends still look very healthy. The targets could easily be reached within the next few months, particularly bearing in mind the fact that December/January has historically been a good period for the markets in general.
 
If we do reach those targets (and bear in mind it is always easier to say what a market will do than when) then I see that as ending the first stage of the bull market. Most bull markets can be classified as having three stages: early, middle and late. The early stage is characterised by a general lack of acceptance - most people are still not convinced that the bear market is over. The middle stage is when people start switching sides, and participation increases. The final stage is often accompanied by very high participation, lots of speculative activity - especially by newcomers - and a feeling that the market can only go higher.
 
It is quite possible as we enter 2010 that this will somehow act as a fresh start in people's minds, and the memories of the bear market low in March this year will fade, allowing the transition from the early to the middle stage to be completed. I still feel that there is a lot of money on the sidelines waiting to come into the market. When that starts to happen, we have definitely entered the middle stage.
 
Away from the stockmarkets, readers will know that I've been very keen on the Gold chart for the last few months, with the break above $1000 as the key observation. In my August report, I said that if that level broke "we should see a very strong advance" In my last column, Gold stood at $1055 and in the four weeks since it has climbed to $1150. I still feel this has very good upside potential - remember, it's at an all-time high and a golden rule (excuse the pun) for any market is that one all-time high leads to another and another. Prior to the break, Gold had been in a range between $700 and $1,000 and the height of a range gives an indication of the potential move once you get a breakout. So Gold can easily reach $1,300 in the medium-term on that basis. However, the price is very extended in the short-term, and I think a correction is needed very soon to unwind this overbought condition. Thereafter, the medium-term trend can reassert itself, and further progress can be made towards that $1300 target.
 
A chart that by contrast is not trending is £/$. Currently at $1.65, this has been stuck in a range for the last few months, between $1.58 and $1.70. The bar chart is pretty choppy, and compared with the charts of the indices and gold, this chart is the most ambiguous. The E/$ chart, however, is still in an uptrend.
 
If you would like to take the first step to understanding Point & Figure charts - my primary technique for making my forecasts - then I will be pleased to send you an introduction to the method, free of charge. Just call my office on 0161 428 1069 and ask for a copy, mentioning Stockopedia.