I am Short the FTSE100. Based on my analysis I think the FTSE, DAX, Nikkei and Russell 2000 have all topped out already starting with the FTSE all share in Jan 2018 (also the Hang Seng & China 50) and ending with the Nikkei in Oct 2018. Only the US large caps have posted new ATHs. So one of 2 things will now happen:
US large caps go on a massive rampaging rally to infinity (or thereabouts) and other indices are lifted to post fresh ATHs, OR
We have seen a progressive tipping point starting with smaller caps and China and progressing through the other indices over 2018 that is a harbinger of US large cap capitulation and when that happens the whole house of cards collapses. Big time!
As a "registered" bear on stocks I don't need to tell you which one I think is the most likely. The perennial problem is spotting the final turn and getting in as early as possible to take advantage of a once in a lifetime opportunity. I get a lot of stick for my bearishness, which I ignore; you can't let people get into your head or they will impact your psychology, which is a killer. I understand that people don't want to believe the gravy train is nearly over but for those with a truly open mind the opportunity could be staggering. So why wouldn't a trader be conscious of this and be alive to the possibility? The answer lies in emotions of course, not being able to give up on the perma bull bias.
Don't get me wrong, when the bull opportunity is there I take it, as I did in January on US stocks. Where I different vs the buy the dips acolytes is that, as a swing trader, I am looking for the turns ahead of time and alive to going both ways as the price action and indicators in my methodology suggest. The different between me and others is that as I have a Bearish bias long term my Longs are tactical where as my Shorts are strategic positions.
With stocks at all time highs and also valuation levels (on various metrics); with economic indicators keeling over; with unprecedented central bank manipulation, which has not helped the average person, only the super rich (and now we still need more to support the house of cards..!), and with fundamentals that are indicating recession or worse on the way, the stock market maxim of buy low sell high is flashing in neon lights. Yet people aren't paying attention to the warnings, well not enough of them, although some very serious players are and these are people you can't really ignore. But this can turn on a dime, as the Americans say, and given the nature of this particular bull market they probably will. So each time I see a potential turn like that I am ready to get Short, stop protect at break even and wait and see. I have been at this for a long time now and each time I have been thwarted but if I don't lose much, or at all, then I live to fight another day and one day I will be right...
Did that day come last week? The likelihood increases with each failure, rather than decreases. People you point to the many failures as evidence that the bull will continue are just evidencing their bias, their hope. All bullish trends look bullish until they breakdown. As @elle said in another thread, all trend lines are destined to be broken. All trends are destined to fail, all Bulls are slaughtered by the Bear in the end. In short: "The trend is your friend, until the bend in the end". At the point of a turn, such as last Oct 2018, the buy the dips boys will start to talk up a "healthy" correction. As if losing money can be healthy, utter nonsense. A 20% correct is good they say. What they really mean is it kills off some of the herd so they, the perma bulls, can get rich on their failure. But that is a topic for when we get there, for now I want to focus on whether we are at the turn yet or not. If we are we should see a strong move down but we will get a relief rally, that may well look like a "healthy correction", before the major wave 3 kicks in.
So looking at the FTSE 100 I see the following.
On the monthly you can see the previous 2 bull tops and the Central Bank induced bull that ran up to May 2018 on the FTSE100. Just as with the Russell 2000 (see previous post) there is an EWT argument for another leg up but the other indicators belie this scenario. Still it is possible so care is needed until confirmation of a turn into a Bear market. The interesting difference between the FTSE100 (and the Russell 2000 and possible the Dax and Nikkei) and the US large caps is that the 1-2 relief rally (purple) has already happened so the next move will be a strong wave 3 down. In reality all the stock indices have effectively gone sideways since 2017, just following different patterns (divergence, which you want to see at an end of trend) with US large caps slightly stronger than others. NMD is present at the major turns in the bull, including the ATH but until the channel line is broken the trend change cannot be declared.
Looking at the weekly then, last weeks' candle is about as bearish as you can get on this market at a turn (i.e. the candle of the turn. Usually it bobs around a bit but this candle hit the Fib 88% and rebounded like the euphemistic falling knife (wanna catch that? No me neither). On the devils advocate side, if the A-B (pink) is a pennant then a rally would make one or both of the red lines above the previous ATH but that falling knife will have to be caught by a lot of buy the dips people to be stopped and reversed. There is strong NMD at the turn and a credible A-B-C wave form and RSI/Stochastic are overbought. No wonder we got a bearish move...
The daily is interesting in that we have a 1-5 up to the wave A (pink) and A-B-C to the B (pink) and a 1-5 up to the Wave 2 (purple) that ended in that hugely bearish weekly candle, so that is a classic A-B-C form to the wave 2 (purple). On the daily chart that bearish move broke through the channel lower line with force (a likely ending channel), again with NMD at the turn and Oscillators over bought and the turn fell short of the Fib 88% (marginally) and didn't make it to a touch on the upper line of the channel, all bearish signals.
On the 4 hour chart things get really interesting. So far this move is straight down and shaping up to be a fast 1-5 form. We aren't there yet and my wave 3 (brown) placement is provisional, it could show lower. Either way a 3-4-5 from here would mark a larger wave 1 (green) and at that point we can expect a relief rally. If this shows and then drops again below the wave 1 (green) the case for the Bear increases significantly. It is a process of constant evaluation, this is why there is never a bell ringing moment at a major trend change,
In summary then, On the FTSE (and the Russell 2000) the case for a Bear market turn is strong and increasing but not yet confirmed. I think we will see some short term consolidation early next week, either a retest of ST resistance (7450; chance of 7500 but I think that will come later) and drop down for another leg OR a Flag consolidation before that further drop. Any shorts I might take would be tactical for now as I am anticipating a larger wave 2 (green) retrace rally and when/if that concludes with a turn back down that will be the time to consider longer term strategic Shorts, leveraging my early Shorts and entering a pyramiding strategy.