A tense week ahead

After a good start to the week, stock indices worldwide tumbled for the last four sessions. The Dow Industrials fell below a 786 retracement of the last up wave but stabilized at the 786 level in late trade. The 786 is a very strong FIB level that’s keenly watched by experienced players. In Germany the selloff wasn’t as marked and the Dax remains above a 50% retracement of the last range. In the UK the Ft100 seems to be following the lead of the Dow and is a tad above the 786 level. That’s probably caused by the earlier close.

The VectorVest Composite which is an equally weighted index of the entire UK market has fared much better with the Composite pulling back to a 38% retracement of the last up wave. I would expect the index to fall on Monday and that the first support will arrive as the resistance offered by the trend line defining the falling wedge from the April high becomes support. I have mentioned this wedge lots of times in the blog. On the Composite the pullback last week is nothing out of the ordinary and even under the most bullish of situations a rising bottom or a right shoulders is to be expected. The chart of the Composite UK is shown below.

david

From the above perspective the chart looks quite positive but the short term trend is down and the underlying trend is down and that’s reality. The front page of VectorVest says “Stand aside” and that’s good advice.

Keep an avid watch on the Composite and the key indices next week as a continued sell off below the major low of first week of July would be a very bearish turn. The Elliott wave people would call it a “truncation” and a 5th wave failure. The levels being tested at the moment on the Dow and Ft100 are very important.

The blood on the commodity markets seems to have taken over from Greece as the main worry to the stock market and there was enough blood for a vampire’s convention last week. I spoke about the 4 causes of losing money in the market to Zak Mir on Tip TV last week and picking bottoms and buying shares that are falling is right up there. Some months ago I was told by many that Anglo could not fall any further at 12 pounds. It broke below 8 on Friday. The interview is posted on www.vectorvest.co.uk/welcome.

The rout was partly due to slow down in China with the Caixin/Markit PMI falling to well below the 50 level which indices a slowdown. This the 5th month in a row that the PMI has been below the key 50 level. Many key suppliers have increased supply and this has knocked prices further.

I still believe that the bear market in commodities is very mature and that a turn is near. It’s still far too soon for me and I will wait for a rising bottom.

In summary the stock market is sitting on very important support levels. I expect those levels to hold and the VV Composite technical picture looks in sync with a fifth wave from last October in progress. In Elliott terms we are at the end (I hope) of wave 2 with wave 3 of 5 about to begin.

Please follow the front page of VectorVest and it will tell you clearly want to do based on reality as opposed to my ego based Elliott count. Below the lows of early July start to watch stops like the proverbial hawk.

Trial VectorVest yourself for 5 week including full support and UK & US databases for only 5.95 GBP ($9.95) Click here to start a trial now.

 

David Paul

July 26th 2015

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