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US indices: a new bull run or a bounce in a longer-term bear trend?

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Stock markets bottomed out at the end of last week as predicted. This week has seen the recovery as expected but is this recovery the start of a new bull leg higher or a bounce in a developing bear trend? Whilst it was great to see stock markets bottom out right on cue last week followed by a very strong recovery as we had hoped, I don’t think this is the start of another big bull run. The charts are actually a little confusing with quite mixed messages, so I have to throw in some gut feeling to today’s technical analysis outlook. However let’s start by looking at one of my favourite markets in the Emini S&P daily chart. You can see a very strong bounce off the double bottom last week which burst back above the 200-day moving average (red line). You can see just above yesterday’s high that we meet the 100-day moving average and a trendline resistance area at 1956/1958. Although this would be a nice area for profit-taking on longs and trying short positions to see if the bear trend resumes, I don’t think we will…

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FTSE 100: one bad month does not end a four-year bull market

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steve w background

The problem with the indices right now is that they are over-invested and over-exposed. With ultra-low interest rates comes an ultra-low incentive to put money in the bank. As 1% of the world’s population now owns 50% of the wealth where does all this money go? With indices and top blue-chip companies offering massive dividends and holding huge cash reserves, it’s not hard to see why the wealthy elite would rather put their money in Google than, say, Greek debt. The problem with the old investment model of a ‘balanced portfolio’ is that, without appropriate interest rates, steady bond prices and stability, that traditional model does not work. Ultra-wealthy people are not looking for massive returns; they are rich enough. When we see stock corrections this is not the retail market. This is institutions and large investors taking profit at the top. When large investors sell the moves are huge, over-exaggerated, a ‘flash-style crash’. This is sheer volume, not necessarily fear or panic-selling. The press love to attribute news to big moves. Russia, Ebola, QE ending… these are all known and have been for months. Technical selling accounts for 80%…

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This content is for information purposes only and should not be construed as trading advice.

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