Things are looking a bit rocky out there at the moment and if the head and shoulders pattern on the chart featured moves to completion, things are about to get a whole lot worse - Unless you're short selling of course.
2018 started off exceptionally well for global stock markets and the FTSE 100 was no exception, hitting an all time high by the middle of January. Trouble is, someone went and woke the bears. Since then markets around the world have seen the inevitable price correction that so many had warned of with most global indices, including the FTSE 100, reaching the magic 10% decline - the mark of an official correction. Time to buy that dip? Not for all the bow ties and braces on Wall Street.
Take a look at the featured chart, you will see the FTSE 100 (CFD) currently sitting at a well over 12 month low and a potential head and shoulders pattern about to come into full effect.
Having already had its full 10% correction and with the bull market still officially in play, you might think it was a good time to buy, but I'll caution you against that and here's why: the 12 month lower resistance level has been breached, the bull market is very late in it's cycle, there's mounting uncertainty about Europe; Trump's looking to start a global trade war; the geopolitical risk index has jumped back up...I could go on but what I'm really saying is that I think it might be time for the Bulls to look for greener pastures.
For those of you that need a reminder on what a head and shoulders pattern is, the theory goes that the market will fall below the shoulder the same amount as it initially rose above the shoulder. The decline is triggered once there is a clear breach of the shoulder line.
In relation to the chart in my related article, when the new higher resistance is the same level as the old lower resistance, i.e. the new highs are only as high as the old lows, it might be a sign that the wind has already changed. The FTSE would need to break back above that level if the bull is to keep on running. Keeping in line with the animal metaphors in relation to the possible longevity of the current bull market, Porky Pig probably would have said it best - 'Tha tha tha tha tha that's all folks!'
