DAX gaps upwards
I am slightly underwhelmed by the action of the FTSE 100, compared to some of the other indices. The UK market is still in a downtrend on its daily swing-chart, although this is a mere technicality. Its gains haven't been quite as thrusting as those of the DAX, say, which gapped higher on Tuesday 10 September. But there's plenty of time for it to join in more fully. I read that Goldman Sachs' fundamental analysts reckon 7500 is a realistic target by next August, and the technical set-up doesn't gainsay this.
Weaker comeback for FTSE
By contrast, the FTSE 250 is on top form. It has blasted higher, triggering a change-of-trend buy-signal along the way. I have been making bullish noises about the mid-cap index for some time, both on this page and in my Market Tactics report (see bit.ly/18bWzwk). The only slight worry I have here is that its monthly relative strength index is slightly overbought but also not at fresh highs. But such 'negative divergence' can exist for some time without the uptrend coming to any harm.
FTSE 250 storms ahead
Long-term overboughtness on the relative strength index is on show elsewhere, too. The tech-laden Nasdaq 100 has reached a reading not seen since its last major peak in the summer of 2007. This is also true of Japan's Nikkei 225, while the S&P 500 is not overbought and negatively diverging like the FTSE 250. While I do not see this as a harbinger of impending doom, however, I will grant that it makes them more vulnerable.
I am not talking about the risk of a crash here, just so we're clear. I came across another crash-warning this week, courtesy of trader618.com. This chartist says that equities will face a "Wile E. Coyote" moment in 2013. Wile E. Coyote is the feral pursuer of the Road Runner in the eponymous Looney Tunes cartoons, who always ends up unwittingly running off a cliff. Only once he realises that he has no ground beneath his feet does he actually plunge, though.
Dow's 'Megaphone'
trader618.com's sees the Wile E. Coyote set-up coming from a rare price pattern called a 'megaphone top'. The reason for its name should be obvious enough from the accompanying chart. It is supposedly symptomatic of a wildly emotional market that is losing its sense of direction. I am not a fan of pattern analysis in general. And I am especially leery about the megaphone. At least I can think of examples where, say, the 'head-and-shoulders' pattern has worked. I can't think of even one for the megaphone.
Above all, I have an issue with the idea that a market could spend more than a decade in this highly emotional confused state. Such conditions are conceivable over a few days or weeks. At least to my eyes, these indices know exactly where they're headed for now, and that's upwards. And that's a message worth amplifying.
