A Big Double Top For FTSE

01/14/08 10:13:46 AM

by Arthur Hill

The FTSE has gone nowhere for over a year and a big double top is taking shape. Waning momentum suggests that this pattern will soon be confirmed.

Security: $FTSE
Position: Sell

Figure 1 shows weekly bars for the FTSE 100 and extends back to early 2005. The FTSE advanced over 1,600 points from May 2005 until July 2007 — not a bad run at all. Things started going pear-shaped after the July peak. The index declined sharply and broke a multiyear trendline. This trendline is valid because it was touched three times (blue arrows). The break was the first warning sign for the bulls.

FIGURE 1: FTSE: WEEKLY. The FTSE 100 advanced more than 1600 points from May 2005 until July 2007 — not a bad run at all.

Graphic provided by: TeleChart2007.

The index managed to find support around 6000 and bounced after the trendline break. However, the bounce met resistance at the July high to form a second top. Hence, we now have a double top working. The FTSE bounced off support at 6000 again in November and has yet to confirm the double top. Support at 6000 is quite strong because the index bounced off this level four times in the last 15 months. A clean break below support would confirm the double top and project further weakness toward the next support zone around 5500 (gray line).

The bottom indicator window shows the moving average convergence/divergence (MACD) with waning momentum. After breaking down in the second half of 2007, the MACD rebounded with a move back into positive territory in November 2007. However, this rebound proved short-lived as the MACD inched back into negative territory over the last two months. With the MACD below zero and below its signal line, momentum favored the bears, and this favors a support break in the index.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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