Friday, November 26, 2010

FTSE Heading Toward Trendline Support

For whatever reason, over the last two years the elliott wave pattern in the London FTSE index has been cleaner and clearer than the US indexes. From March 2009 to April 2010, the FTSE traced out a very clear 5 wave advance without the overlapping waves present in the US indexes. Yet, the action in October this year was not so clear and we are left with the same ambiguity as in the US.

However, the FTSE is clearly headed for trendline and channel line support. It needs to hold this support to prevent breeching the November low. I think the November low in most stock indexes is the critical level to be watching. Once it gives way the only downside support will be the July/August highs, but touching those highs will invalidate the impulsive wave count from the July low, which will be a big blow to the bulls.

Regardless, we will still be left wondering whether we are completing a flat correction or are in the middle of a larger triangle until the action in December plays out. One interesting possibility that I had not considered before is that the Nasdaq 100 could be forming a rare, but valid running flat. In a running flat, wave (B) exceeds the high of wave (A), but wave (C) does not reach the low of wave (A). This would be a very bullish outcome and really keep everyone guessing as most would see the 5 wave decline that fails to test the July low as a clearly bearish turn of events.

The fact is that the market action relative to current events is not dissimilar to what occured earlier this year, and we should be ready to take full advantage of any repeat of adverse market action.

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