Yesterday the FTSE 100 was kind of moving sideways, I was expecting a decline to 7530 before the rally to 7590. Today the FTSE rallied to 7583 and is now pulling back. That was very close to the all-time high at 7599. Technically the FTSE has not made a new all-time high, a move above 7599 would be a new all-time high. Obviously when the price is so close to 7599 the probability of a new high increases, so we can’t rule out a new high.
As I have explained in previous updates, the main reason the FTSE is at these levels is the strength of the S&P 500. The S&P rise has been relentless, but the S&P has also completed its pattern, any new high creates an extension or a change of pattern and if the pattern changes it is a small detail in the larger picture. The larger picture is that of topping pattern supported by extreme in optimism, the exact condition that occurs a major market tops.
The behaviour of the S&P is not new, it’s happened before and we know what the next phase will be, it will be a large correction. But markets that are driven by extreme optimism can go on for longer than expected. That is what we are witnessing today. On top of that there have been other bullish factors that took place at the same time like the earnings season and now seasonal factors kick in. The period November-December is generally bullish for stocks, however this is a tendency, it’s not guaranteed the markets will rise during that period. There have been some sharp declines in November-December in the past.
The bottom line is, new high or not, nothing much will change, the next major move will be down. If you are a day trader you can still go long but if you are a swing or position trader holding your trade for more than a week, you are looking to sell the rallies.