Saturday, July 27, 2013

Where are we going now?

The current daily charts of the major indices show that prices have stalled over the last few days. While the US indices did exceed the May highs, the FTSE, DAX and the Nikkei did not, and would appear they are trying to form a lower high. Who knows if this is a pause within the existing uptrend, or the start of a reversal? I know I don't.

One of the basic definitions of an uptrend is a series of higher highs and higher lows. Using the same theory, a downtrend is characterised by a series of lower highs and lower lows. Using the outer price channels can help you identify this. I like to look for what I call the staircase effect. However, changing the timeframe you look at may give a different picture.

For example, the daily FTSE chart shown below clearly shows that the June lows created a lower low, and it is possible that it is currently in the process of forming a lower high.

However, if you look at the weekly FTSE chart (shown right at the bottom), then this shows a different picture - the June lows coincided with the early 2012 highs - a case of resistance now acting as support? That chart shows that a series of higher highs and higher lows, and therefore the current uptrend, is still intact. The stairs are moving up.

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