DAX's repeat buy signal
Relatively few shares have been changing hands in this environment. This is entirely normal for this time of year. Many traders - especially in the US - do not return to work until after the Labor Day holiday on Monday, 3 September. And those who are at their desks are most likely holding back from making big trades ahead of Friday's meeting of central bankers in Wyoming.
Low-volume Nasdaq
For my part, I am in no hurry to trade ahead of that meeting. If, as many expect, Ben Bernanke drops another heavy hint about more money printing, as he did in August 2010, a big rally could be in store. If, as I believe is most likely, he fails to commit decisively at this point, a shakeout could well ensue. In turn, I believe another decent buying opportunity should present itself.
I do not see the markets collapsing without the promise of further quantitative easing. There are some who are forecasting a big top around now. I received an e-mail in early June from a Gann theorist who said that if the US markets made new highs in August, a crash of epic proportions could then follow. I don't buy it, though. There are few technical signs of a top, at least in my book.
FTSE's bullish plateau
David Schwartz - the eminent stock market historian and FT colleague of mine - agrees. In his excellent column (http://on.ft.com/OIHZAd), he discusses the FTSE's recent sideways shuffle over a 10-day period in a range of less than 2 per cent. David describes this behaviour as "plateauing".
That term has unfortunate connotations in the stock market. Professor Irving Fisher famously opined in September 1929 that "stock prices have reached what looks like a permanently high plateau". Just three days later, Wall Street began a crash that was to wipe almost 90 per cent off the value of the US market as a whole. But, according to David's research, the sort of flat-lining we recently saw in the FTSE has bullish implications some 99 per cent of the time.
Barring Armageddon in the eurozone, I therefore expect the FTSE's bull market to continue to fresh highs above 6106. I try not to get too far ahead of myself when looking at markets from a technical perspective. However, a glance at the FTSE's point-and-figure charts highlights important targets around 6650 and 6670. I believe the fundamental case - which I shall soon address outside of this column - supports this point of view.
Gold breaks higher
I am also encouraged by the latest breakout in gold. The yellow metal has smashed above its 200-day moving average for the first time since mid-January. I am naturally much more bullish when the price is above this level. As I explain in my latest video - bit.ly/OGtblM - the activity of some of the market's savviest players could be signalling a major boom in the offing. As with stocks, however, it is worth waiting for the central banks' next move before going heavily long.
