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Sunday 5 October 2014

Review and renewal of Black Monday pledge

I expect the markets to fall this coming week.


This image shows the shape of the FTSE 100 since 1990. It has kept within the range described by the shaded polygon. Having reached another apex in line with the previous 2, it has commenced to drop along line D. Early in the week, I made good gains, but lost them when I was too eager to get back in on Friday before its little bounce-back had come to an end. In the  coming week, I must be ready to re-enter as soon as it resumes its downward movement, which could, as I speculated in a previous post, become a crash.


The S&P 500 faces an even bigger drop, having twice broken out of its polygon, first on the down-side and, this year, on the upside. It is not quite so clear that it has started the down-trend: as I indicated in a previous post, it may have a double or treble peak at its present level before dropping.

The rise of both indexes to their present highs was driven by quantitive easing and low interest rates. The Quantitive Easing programmes are being wound down, and interest rates mus rise from their present abnormal lows. Sterling has signalled that the interest rates will rise in 2015, but the American Fed has indicated that the low rates will be continued for the present.

The markets know that, whatever words issue on the matter, interest rates will rise. They won't wait, but anticipate. Therefore, I expect both indexes to tumble sooner rather than later.

As to forex - EUR/USD and GBP/USD:

 
My polygon suggests that GBP has more ground to lose against the US Dollar, before a rebound is due.


My polygon on the EUR/USD suggests that the present downtrend might be coming to an end. However, the raw facts that the Eurozone is only commencing a programme of Quantitive Easing and that there is no prospect of an interest rise in this zone for the foreseeable future, indicates that there will be another substantial movement to the downside, whereupon the polygon will need to be redrawn to show the previous extreme dip (from 2000 to 20003) as the normal bottom.

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