Footsie Analysis May 2015 (D,M,Y)
Created on Friday, 01 May 2015 00:23
Written by Austin Galt
The UK stock index, the Footsie, looks to have its final high in place. Let’s first review the short term picture before zooming out for some big picture action.
FOOTSIE DAILY CHART
In previous analysis I outlined three levels of resistance with the last being the continuous contract high around 7127. Price so often takes things to the limit and here is yet another example of that with price turning back down just shy of that last line of resistance. Knowing that fact, I should have foreseen that happening. The strive for perfection goes on!
The continuous contract high occurred on the 16th April at around 7127 and is denoted by the upper horizontal line while the cash index high came on the 27th April at 7122 which in itself is a little bearish divergence.
I have added Elliott Wave annotations depending on which top you use. Keep in mind this is easier to see on the intraday chart. This just shows Elliott Wave can be interpreted many ways and I only use it to give structure to the way I see the market. Using the continuous contract high means the rally that took place last week was an ABCDE rally while if you use the cash index high as the final high it was a 5 wave rally to bring in the wave 5 high. Take your pick!
Price has now moved below the previous swing low which was the end of wave 1 or 4 at 6979 depending on how you view it. So we have or will have shortly a lower low in place and now just require a lower high before the new bear trend can really let it rip.
The PSAR indicator shows price has just busted the dots on the downside which represented support. As often happens after this event is price then goes back up to test the dots which are now on the upside and represent resistance. I think this will take place here.
I have added Fibonacci retracement levels of the recent move down and the first rally in a new bear trend often makes a deep retracement so I am looking for a rally at the start of the month that gets up to the 76.4% level at 7071 or the 88.6% level at 7098.
The Bollinger Bands can be seen to be tightening up which is consistent with a consolidation or trend change. I favour the latter.
The RSI showed multiple bearish divergences at the final high as did the MACD indicator which is now trending down and looking bearish. The averages of the MACD look to have diverged so a bear rally now would help the averages come back together before price resumes downward.
Let’s now check out the big picture beginning with the yearly chart.
FOOTSIE YEARLY CHART
We can clearly see the massive triple top, denoted by the number 1, 2 and 3, which began with the 1999 top. This should lead to a reaction down but, as this triple top is against the trend, once the move down has run its course the uptrend should resume which sees price break out to new all time highs.
Now I have previously noticed a fault in my prognostications which revolve around triple tops and that is in regard to the depth of the reaction downwards. I have been overestimating the depth that price trades. While price often makes a deep retracement from double tops against the trend, the depth that price trades after a triple top against the trend is much less. Therefore, I have significantly reduced my expectations for how low price will trade in this expected reaction down.
Where do I expect the final pullback low to be?
I have added Bollinger Bands which show the 2009 low bounced bullishly off the lower band which adds to my confidence that a massive bull trend is still in play. I now expect the pullback low to give the middle band support a good test. Just as the 2003 low dipped a bit under the middle band before turning back up, my expectation is for the final pullback to do something similar.
I have added Fibonacci retracement levels from the 1987 low to recent high and I am targeting price to put in a low around the 38.2% level which stands at 4978. This would keep the long term bull trend in a strong position.
The PSAR indicator is bullish with the dots below price and it looks very early days for this bullish bias.
The RSI and Stochastic indicators both look set to show a bearish divergence at this high while I would like to see another bearish divergence added to the mix before the final high to this massive bull market is put in place.
Let’s now do some more work on potential levels for the pullback to end using the monthly chart.
FOOTSIE MONTHLY CHART
The RSI and Stochastic indicators are both showing bearish divergences at this high.
The Bollinger Bands show price trading above the upper band at the recent high which is commonly found at solid highs.
I have drawn a horizontal line which denotes support given by the lows from July 2010 and August 2011. This level stands at 4790 and I am looking for support to once again come in at this level.
I have added Fibonacci retracement levels from the 2009 low to recent high and I am targeting the 61.8% level at 4858. Interestingly, the support line mentioned above is just below this level.
I have drawn two Fibonacci Fans which have both shown some nice symmetry with price. The bullish fan is drawn from the 2003 low to recent high and I am looking for the final pullback low to be around support from the 61.8% angle. The bearish fan is from the 1999 top to 2003 low and I expect the final pullback low to be around support from the 88.6% angle.
The green highlighted circle shows where the Fibonacci Fan angles intersect with the 61.8% retracement level and is where I expect the final low to be. Time will tell!
Summing up, the SS Footsie looks to have sprung a leak. Abandon ship!