FTSE 100, Global Pain, More to Come.

Click on chart for larger image

The London Stock Exchange FTSE 100 Index closed on Monday 15th September 2008 at 5204.20.

The Head and Shoulder measurement formula (vertical red lines on chart) suggests a minimum price target of 3600 over the next several weeks, possibly months. The current downward thrust, the "Slope of Hope" as Robert R. Prechter of Elliott Wave Principle fame would call it, might even take a year or more to drop the 1600 points to the 3600 level.

The 3600 level is a minimum expectation. The actual bottom level for the FTSE may well take more than a year to reach.

Note the declining 30 week Simple Moving Average. It’s mean and ugly. All the signals on this chart ought to be worrying longs and making shorts breathe easy. On the way down to the expected 3600 level and below, expect many bear market rallies. The reluctance of many market participants to witness and accept the end of this latest world-wide, secular bull market cannot be underestimated. There is power in denial. It is not merely greed or desperation that drives bear market rallies upwards, sometimes in spectacular fashion, but also a deep disbelief in the fact that the party is over.

As in the 1929 to 1932 decline, many players will choose to risk their money (or other people’s money) whenever they see what they believe to be a bottom, only to be repeatedly and bitterly disappointed. This secular bear will destroy the dreams, wealth and health of many individuals; it looks like being so great that it is perhaps appropriate to quote from the third chapter of Ecclesiastes:


For everything there is a season,
and a time for every matter under heaven:
a time to be born, and a time to die;
a time to plant, and a time to pluck up what is planted;
a time to kill, and a time to heal;
a time to break down, and a time to build up;

These profound words go on, of course. But the important point is that after anything - including global markets - breaks down, there will indeed come a time when they will once again build up. Someone wise once said, "He who can have patience can have what he will."

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For those chartists interested in Elliott Wave Principle, I have indicated where I believe the corrective A-B-C waves are. Of course, the potential end point of Wave C is way off the chart. Elliottitians know the ferocity of C waves. They are the Hurricane Katrinas and Cyclone Traceys of stock markets.

Bon chance! Good luck to all with the FTSE, or with any other market, long or short or out on the sidelines. As Herbert Marshall McLuhan (1911–1980) noted, this is a Global Village we're living in. Back in Toronto in the 1950s my friends and I played bicycle chase outside Mr McLuhan's home.

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James Leo Donoghue