Technical Market Report - The End of the Beginning

The bull market - called in these reports in May 2009 - continues, with the Dow Jones Industrial Average rising to 11118, up from 10829 in my last report four weeks ago. Likewise, the FTSE 100 has risen to 5675, up from 5592.

Neither market shows any sign of a reversal, nor are they overbought, having made small corrections recently which has brought the 7 day RSI back to neutral levels on both indices. Both are very close to the upper boundaries of their multi-month trading ranges. I'll come back to this observation in a moment, but first let me remind you of what I said in my last report:

"The index that looks like it could be the first [to break out] is the DAX which is only about 2% from the upper boundary. This resistance level has been in force for most of this year, so breaking it would be a highly significant development which should see that market move substantially higher. If one major index manages to break out, then almost certainly the rest will follow"

At the time, the DAX was at 6211, and the upper boundary of the range, i.e. resistance level, was at 6350. About a week after I wrote the above, the DAX broke through, and has since moved higher almost in a straight line to 6601.

My forecast that this would be the first major index to break out of its range proved right on the money. We now need to see if the second part proves correct - that it will act as a precursor for the other indices. The way it looks at the moment, it's just a matter of time. If I'm right, this will mark the start of the second stage of the bull market. To put things in context in terms of where we are in the bull market, I'll borrow a quote from Churchill;

"This is not the end, it is not even the beginning of the end, but it is the end of the beginning."

Away from the stockmarkets, there are very interesting developments on the Point & Figure charts of £/$ and E/$. Sterling has a classic shuffle pattern (taught in my Point & Figure MasterClass course) and the Euro is on the verge of completing a congestion area. Both are continuation patterns which should see further advances for both currencies against the Dollar. Sterling, currently at 1.60 could climb to 1.68 which is where the next resistance level is. If it were to get past that, it could move a lot higher as there would be no resistance level for a long way, but I'll cross that bridge if and when we come to it.

Last time Gold stood at $1319, and I reiterated the rule of one all-time high leading to another and another, and it has subsequently climbed to $1358. I'm sure you are all familiar with the contrary advice that the time to buy is when there is "blood on the streets". One of my delegates, Paul Orkin, pointed out last week that there is now "gold on the streets" a reference to the world's first ATM dispensing the yellow metal rather than banknotes. I think this is an excellent warning of a market getting into some kind of final phase or overheating, but as with all contrary thinking, the timing is never exact. The observation is certainly useful, and it's a very interesting manifestation of crowd psychology, but I would say we only have a sell signal when the chart gives a clear reversal pattern, and so far it hasn't. Contrary indications such as this can be out by months, and as you would expect, I'll await the chart to give us a more precisely timed exit.