'Unless a man has trained himself for his chance, the chance will only make him ridiculous' - W. Matthews '

A speculator is a man who observes the future, and acts before it occurs' - Bernard Baruch

'A man surprised is half beaten' - Thomas Fuller

'I had a terrible thing happen to me yesterday. Opportunity knocked on my door and by the time I had unhooked the chain, pushed back the bolt, turned the two locks, and shut off the burglar alarm - it was gone! - Robert Orben.

The number of experts who express a rosy view of the markets I find 90% are painting a bright picture of a much better future. That is the same way they did in 2007 when the markets commenced their slide into despair. Can we afford to be influenced by these institutional children…surely not? They perpetually follow their economic theories despite the obvious continuous failures to come any ware near to avoiding every catastrophe thrown at them… yet investors with short memory's persist in being persuaded by their inappropriate analysis. So is the march forward to persist or do we stand on a precipice?

General Indicators

100% CASH - GREAT DEFENCE HAS ITS COSTS

Special report - FTSE 100 NOW AT A CRITICAL LEVEL

THE ODDS HEAVILY ON THE DOWNWARD TREND TO CONTINUE

This FTSE 100 Bear Market commenced its 50% fall after a triple top formation on the 15th October 2007 with the downward trend being maintained until this day. Our two week chart continued to form lower tops and bottoms throughout the fall since 2007 confirming the continuance of the Bear market. This enabled us to protect capital throughout a period when the vast majority of investors were seeing their portfolios being devastated by as much as 75%. In the course of following the medium term trends there comes a day when a Great Defence has its costs. This occurs when a short term upward trend moves upwards within the medium term downward trend. This we have just experienced.



















With hindsight I would have participated in the rise from the G1 low. However, my FTSE chart analysis (See chart above) indicated that only a rise to the lower of the two falling angles was likely accompanied by the informed buyers' reluctance to buy into the FTSE fall. Our basic philosophy of using a great defence has its costs at times but this is heavily outweighed by the advantages we have recently enjoyed.

Throughout the falls of the last few years I have happily withstood the temptation to participate in limited upward moves resulting in capital retention as the markets continued to collapse. Once again I concluded entry in March would not warrant the risks involved with a further bearish factor being that several world markets had broken under their important G1 levels. The likelihood of a sustained rally in these circumstances seemed unlikely and so the shorting programme was continued.

The result has been an unleveraged loss of approx. 6% with a recent liquidation back into a 100% cash position. This puts us in a good position to claw back the losses and move forward once again. The omens whether the market rises or falls looks good when the current extremely interesting position of the FTSE is considered.

THE TWO WEEK CHART & THE HIGHEST RALLY ON THE WAY DOWN

The first indicator to consider is the two week chart. The current level is just short of the last top on the two week chart at 4676 where either a bearish triple top could form or a confirmed bullish break upwards materialises.



















The 1st Bullish scenario

A break upwards above the two week chart tops at 4676 would indicate the probability of a rise to 5765 and trigger a buying programme. The medium term trend would then have moved from bearish to be positive/neutral with a higher top and a lower bottom (See chart above) A rise above 4676 would also result in the current rally being the biggest rise during this Bear market. This is a Gann indicator that would signal the end of the Bear market at least temporarily.











The Bearish scenario

'The greatest advances and declines usually start from triple tops or bottoms, but remember that these triples must be several weeks or several months apart to be of great importance ' - Williams D. Gann.

'It is very important when a stock breaks 50% of the highest selling price. When it does not get support it is in a very weak position and indicates a decline of 75 down or more' - William D. Gann

A fast fall from current levels would form a triple top created over a 6 month period (Triple tops are the most destructive formation) The rule here is that such a move will fall faster and further than the previous two falls. This suggests that the next move will be greater and faster than the January to March 2009 fall and will take the index below the G1 level at 3500. The ominous point here is that if the G1 is broken the chances are high that the index will fall to the G3 level at 1737.5, the level I forecast back in 2007. This follows Gann's observation that when the G1 level (50% from the historical high) is broken then a fall down to the G3 level (75% from the historical high) is assured.











The 2nd Bullish Scenario

'When a stock reaches the same top or bottom for the 4th time, especially if it is several weeks or months apart, it nearly always goes through' - Williams D. Gann

If the drop from the triple top is laboured then the usual scenario is for the fall to more often than not retrace 50% of the last fall and then turn upwards and break into new high ground above the triple top. If this scenario plays out then a square of the current trading range would be on the cards taking the index up to 5765.











The Least Favourable Scenario

The worst possible scenario would be for a move sideways which moves sideways through the higher falling angle on the chart and does not penetrate the triple top formation over 4676. All bets would then be off with little advantage likely to be gained by being in the market.










Summary

The next few weeks could prove extremely interesting with the probable commencement of a highly profitable trading period from the UK point of view. The other world opportunities will be assessed in my next WTFH on my return from a short Lakes break.

Regards,

Fred Stafford.