The FTSE 100 is in no man’s land

It's not always easy to make sense of volatile markets, says John C Burford. That can be dangerous for swing traders.

During the lively webinar that I gave for Trade for Profit members yesterday, I had a request from Matt to analyse the FTSE chart. He said that the market had been whipsawing around since June 2013 and has created a chart that looks like a dream for swing traders'.

Well, I look upon whipsawing charts with horror, not anticipation! It is so tricky to align yourself with the sudden zigs and zags that's what makes swing trading so tough.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

However, more short-term trading, such as day trading, can actually be more rewarding in these conditions.

So today, I thought I would perform my usual analysis on the FTSE using my tramline methods, because it does illuminate a very important principle of tramlines: when tramlines conflict, a no man's land appears.

Advertisement - Article continues below

Timing is everything for swing traders


I have a clear large-scale A-B-C with both A and C waves sporting complete impulsive five-wave patterns. Remember, when a five-wave impulse terminates, the next move is opposite that trend.

My B wave is also pure textbook, containing a clear three wave A-B-C pattern.

Also, note the momentum divergences at the final fifth waves of A and C, indicating a lessening of buying power to the tops lasting many weeks.

Under this interpretation, the market has completed its relief rally off the 2009 low and is heading down in a new trend. Therefore, the correct trading stance is to look to trade short. But in swing trading, correct timing is critical.

For relative beginners, it is so easy to get swept up with your superb analysis and confidently sell the market with no plan! That is the road to ruin when dealing with these leveraged markets.

The market keeps hitting a brick wall


My next task is to find suitable tramlines and here they are. The lower tramline practically drew itself with the lows lining up almost perfectly on a straight line. Remember, this line has spanned three and a half years. Isn't that impressive? For the market to remember where support is located after three years is surely remarkable.

Advertisement - Article continues below

My upper tramline is pretty good and my PPP (prior pivot point) has a small overshoot. But the important overshoot is the one in 2013. An overshoot of the upper line indicates that the buying power has exhausted in that final flourish and to expect a big swoop down as sellers take over.

And that is precisely what occurred with the market reversing smack on the lower tramline! What a superb opportunity to trade with the uptrend.

But for the past year, the market has been zig-zagging in a general upward direction. Every time it has reached the 6,900 level, it has hit a brick wall and retreated. There is massive resistance at this level.

Also note the wedge pattern I can draw, and its break on 31 July signalled a break of the major tramline and a trend reversal.

No man's land: The place between support and resistance


Since July 2013, the market has been in true whipsaw mode. But I can draw excellent tramlines over the highs and lows! Under these tramlines, the market bounced off the support provided by the lower line last Friday and is heading up as I write.

Now the market is trading under the major long-term tramline, but above the short-term lower tramline in an area I will call no man's land'. It lies between support and resistance.

Advertisement - Article continues below

If the market can rally further, it could make it to the underside of the major tramline and plant a kiss. It would then be open to head down in a scalded-cat bounce. If this occurs, and the new lower tramline can be broken, that would signal the bear market was in full flow.

Which way will the market go next?


This is the move off the C wave high and there is a clear motive five-wave theme. My third wave is long and strong and the fifth wave is extended (a very common feature in today's markets) with its own five sub-wave pattern. This confirms the new down trend.

With the bounce off my lower tramline and the positive-momentum divergence there, a relief rally was set up. The most common form to this rally is an A-B-C. So far, the market has shot straight up in a likely A wave with the current pause around the Fibonacci 38% level providing a shallow B wave, so far.

My short-term expectation is for a C wave to be put in above the 38% level, although resistance at this level is very stiff (count the number of repulses). But breaking it could provide the boost needed to produce the tramline kiss on the long-term tramline above the 6,700 level. A realistic target under this scenario is the 6,700 6,800 area.

Of course, if the major trend really has turned down, rallies should be short-lived and the big moves will be to the downside.



Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019
Spread betting

DS Smith will deliver: here's how to play the share price

Packaging group DS Smith is profiting from the online retail boom. Matthew Partridge explains how traders can play the share price.
3 Dec 2019

Most Popular

Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020

The euro’s slide against the US dollar looks set to continue

The euro has been in a bear market against the US dollar for two years now. And on a broader scale since 2008. A decline like that is telling us somet…
19 Feb 2020
UK Economy

Britain’s economy might spring a surprise on the doomsayers this year

The UK economy is looking pretty good – we’re more at risk of a boom than a bust, says John Stepek. Here’s why, and what it means for your portfolio.
20 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019