S&P heads higher
The latest rally looks especially significant for the FTSE 100. Our main domestic index went to a high of 6876 on 22 May 2013, before dropping to 6023 over the next month. Almost a whole year later, it has made good the damage suffered in those four weeks. It had come close to doing so twice already, in January and February, but baulked and then sold off sharply both times. While I have little time for pattern analysis, I would concede this now looks like the completion of what is known as an 'ascending triangle'.
FTSE's triangle break
A bullish triangle is typically said to happen in an uptrend. It is defined as when a market hits a high, but then recoils, before making at least two more unsuccessful attempts to take out its previous high. The appearance of this pattern supposedly implies that the market is eventually likely to break out above the top of the triangular range. The gains after breakout are then meant to relate to the dimensions of the triangle. In the FTSE's case, I calculate the eventual target now to be 7849.
Of course, I take this target with a pinch of salt. It's not that I think FTSE can't make such gains. At least a couple of very credible fundamental valuation models give a similar objective. It's just the lack of any hard evidence that patterns have any reliable predictive power. That being the case, it would be wrong for me to wheel out this formation's message in support of my still-bullish stance. For the moment, I am merely focused on the near-term objectives at 6951 and 7000.
Mid-cap boost
Hearteningly, the riskier indices are also showing signs of life. On Tuesday 13 May, the FTSE 250 index gave a change-of-trend buy signal on its swing chart after two weeks of virtual stagnation. The tech-laden Nasdaq 100 did so on the same day, and also opened well above its highs of the previous session. While neither of these markets would be my index of choice right now, their ongoing revival is clearly helpful for the more mainstream indices' prospects.
Nasdaq sparks up
Needless to say, the latest gains have confounded those who have been confidently calling a top - yet again. However, they warn the likes of me that the US breakout isn't the Real McCoy. One suggestion is that this is 'exhaustion topping', which also occurred on low volume. I have no idea what 'exhaustion topping' is, although it apparently figures in the work of Tom DeMark, creator of a family of indicators. Maybe it's been too long since I sat my technical analysis exams. The low-volume criticism is more easily dealt with: much of the bull market of the last five years has taken place on feeble volume. I am happy to bet on this continuing, at least in for the short term.
