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Anglo-Saxon shares

Anglo-Saxon shares
July 30, 2014
Anglo-Saxon shares

Focusing on the charts of the Dow Jones Industrial Average, Dow Transports, FTSE All-Share and FTSE 250 indices, we will try to decide whether they are correct in avoiding these nations' shares.

Big Daddy Dow, originally the top 30 American industrial companies, but now including four financials and one insurer, has seen a staggering decline in traded volume, a fraction of its peak in 2008-09, back down to late 1990s levels - never a healthy sign for any market. Then again, too much, as in Shanghai this month, can signal problems. Back to the US, historical volatility is well below the mean of the past 50 years, more usually associated with steady rallies, which has indeed been the case since 2009, trapped between Andrews' pitchfork trend lines. A break below the central line, which looks possible as the index is overbought on the RSI, suggests a slide towards its lower edge. Timing a tad tricky, but possibly this summer, we may find that once again declines stop somewhere midway between the two lower lines.

 

Dow Industrials

 

The Dow Transportation index, a select little list of 20 airlines, railways and delivery companies, looks, quite frankly, tired. But volumes have not shrivelled as much as the industrials, and volatility is also subdued - as the index has more than tripled in value since 2009 it is more stretched (though not overbought). Repeated failure in the 9200 region since November suggests much of the move of the past year is some sort of extension above the top of the Andrews' pitchfork and that we are likely to retreat slowly towards 7700.

  

Dow Transports

 

The FTSE All-Share has been struggling with quarterly trend line resistance since the millennium but might, just might, be set to break free in Q2 2015. The only trouble is that it is overbought right now and bullish momentum is not as strong as might be needed. Remember: equities are rallying partly because of the zero interest rate policy central bankers have decided upon. They have also warned us that these are temporary measures and that rates will soon get back to normal - time and time again. First in line were the US and the UK as their economies were growing; it looks as though rate rises may not materialise for a sixth consecutive year. If so, perhaps a small bullish wager here - for the adventurous only.

  

FTSE All-Share

 

The UK's mid-cap 250 FTSE index looks quite different from its broader UK brother, surging to a record high this month. Rather than eking out gains, moves over the past decade can be seen as a series of clear alternating trends and small corrections. The latest retreat ended in October by holding above the trend line and bouncing from Fibonacci 38 per cent retracement support. This, in turn, set off the fifth rally since 2009's low where Elliott-wave-measured targets suggest further gains to 18500 and possibly an explosive finale towards 20500.

  

FTSE 250

 

These charts suggest fund managers are correct in being underweight or steering clear of our two US indices, but are perhaps being a little unkind to UK ones.

 

MORE FROM NICOLE ELLIOTT...

Nicole Elliott is a long standing Member of the Society of Technical Analysts and has just taken over the IC's trading coverage. She is regularly interviewed and quoted by the financial media, is a conference speaker, and author of several books on charting.

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