FTSE flourishing
Needless to say, the bears have their own special take on the FTSE's recent leadership: it's a warning of impending troubles, of course! At least over the past few years, the FTSE has tended to outperform the likes of the DAX mainly in corrective or bearish periods. In the two major slumps of the last dozen years, the FTSE fell much less than the DAX, as it did during the three smaller sell-offs since 2010.
FTSE beats DAX in bears
The difference this time, however, is that the FTSE has led the way in positive fashion, ie by rising more, rather than dropping less. Looking at some of the last few tops - major and minor - of recent years, I see no evidence to suggest that this state of affairs is a harbinger of doom. Instead, I see it as a healthy period of catch-up - and one that has plenty of scope to extend. Fundamentally, the market is cheap, but we'll not get into that here. Technically, its latest action has also improved matters a lot.
FTSE's triangular breakout
On 9 January, the FTSE finally broke above its February 2011 highs at 6105. The index had already broken decisively through the triangular pattern that had formed since that time, which has surely put a massive dent in the argument that the index was topping out. Technical analysis says that the larger the triangle, the bigger the eventual breakout. I wouldn't be surprised if the FTSE took out its 2007 highs at 6754 this year.
As it happens, I am expecting the DAX also to make further headway before long. After its nine-day correction from its bull-market highs at 7794, the German index is on the verge of giving a repeat buy signal on its swing chart. I would have no problem following such a signal, if it occurs. As the wider bull market progresses, the DAX is likely to reprise its traditional leadership before too long.
S&P's cyclical peak
Still, I don't want to play down the near-term risks too much. One potential cause for concern comes from my cycles model, which is pointing towards a turning point on Wall Street around now. The cycle in question is the 87-day cycle, which has helped identify many of the S&P's significant highs and lows in the past couple of years. It did a smashing job of picking September's high and November's low. So, why am I not heeding its message today?
The answer is that one should never use the cycles model in isolation. In the autumn, other technical factors supported the case for a turn on each occasion. Specifically, the market was overbought in September and oversold in November. Today, though, the S&P 500 is not overbought. Its daily relative strength index stood at 64 per cent as of Tuesday's close. At September's cyclical peak, it was 75 per cent. The cycle model is wrong about a quarter of the time, in my view. This is one of those times.
