Bull Market in Stocks Nearing An End

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Stock markets advanced after some favourable US economic data. Jobless claims fell more than anticipated, the Dow Jones made a new multi year high, the S&P 500 and FTSE 100 are still below their all time highs. There is something not right about this rally, volume. In a bull market volume should expand with the advance, here we have the opposite, volume is getting thinner.

 

http://www.bettertrader.co.uk/research/USvolume130313.jpg

Any technical analyst will tell you that a rally on decreasing volume is a bull trap. Yes we should go long with the trend but when the advance is not supported by healthy volume we should be cautious. That’s why I always recommend to buy the dips, it is a safer option. What the lack of volume is telling us is lack of interest, in short the big hands don’t believe the rally will last. I don’t either. A simple calculation will tell you why. If the FTSE is already up 10% in less than three months, that’s equivalent to more than 50% per year. Let’s face it, do you really believe the FTSE can continue to rally at this pace for the rest of the year? The answer is no.
In the short term the FTSE should rally to 6600 to complete five waves up. Then we should see a sharp correction to 6300 in April.

Thierry Laduguie is Market Strategist at www.bettertrader.co.uk

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