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FTSE All Share (ASX)
The markets customarily rally in the new year, as new money is attracted on bullish outlooks, but this year seems destined to be different.
The ability of the index to hold up into year end 2007 seemed to defy gravity. Last week’s employment data scotched any claims that the US was not entering into recession, with the UK likely to follow.
In reality over the past 12 months we have probably been seeing the development on the charts of a large top formation, which perhaps became apparent with the break, at the start of August, of the long-term bull trendline that has supported the UK bull market since its correction in mid-2004.
Can there be any salvation for the bulls? The likelihood seems to be that the market will slip to test support from the trend line draw off the June 2006 low, currently near 3,115 and close to congestive support from previous lows and highs seen over the past 18 months.
If there is to be any saving rally then it must come when this area is tested, and a break and close below 3,080 would seal the market’s fate down toward 2,760.
S&P 500 (GSPC)
The adage that, when America catches a cold, we get pneumonia should not be dismissed.
The S&P 500 failed to climb properly above its 2000 high in mid-October, subsequently signalling weakness as it dropped below this level, and has opened 2008 with a move down toward a test of key support from the channel base trendline that coincides with the 1,406 low seen late in November.
The index did break below this line briefly in mid-2006, then produced a strong rally; but this time, with the backdrop of what appears to be a large top formation spanning much of the past year and persistently weak momentum, its a brave man who sees any real upside potential from a technical perspective currently.
If the index clearly breaks this support then look for a move to test 1,375, the current level of my provisional ‘neckline’ for what could turn out to be a complex double top.
Should this complete, it would likely target 1,168, a highly influential level in 2001, 2002, 2004 and 2005. Along the way, potential support levels are seen at 1,275 and 1,182.