Both short term and underlying trends on the LSE VectorVest Composite are positive after the close on Friday before the long weekend. Once again, the VectorVest Composite (which is a measure of the entire market) is proving much easier to forecast than the FT100.
Support has held on the Composite at the old high from March which is also a 62% retracement of the last trading range which peaked at the start of April. The index charted a treble bottom at support.
I have mentioned the “Flag” formation last weekend and since this the flag has broken to the upside, as I suggested it would. During the week, the LSE broke up through the trendline defining the top of the flag and then on Wednesday and Thursday came back and kissed the same trendline. This is a good sign and the lows of Thursday were defined as traders bought the market at support. That’s a sign that really smart money is accumulating shares at the very best possible level, which is their trademark.
The reverse divergence between the price and the Macd indicator, which is known as a “slingshot” is still in play. The signal line of the indicator crossed the Macd line also during the week, which is a positive sign.
The price column on the VectorVest Color Guard printed a Green light on Friday and that means the VectorVest Composite is UP day over day and week over week. Importantly the Green Light is confirmed by the RT Kicker trading system which adds to the hit rate of the signal. Over the past two weeks, it’s been common to see a Green Light in the BUY/SELL column of the Color Guard and again that happened on Friday. The advances greatly outnumbered declines on Friday and the B/S ratio is 2.4. To me this suggests solid accumulation of shares right across the London market which has been taking place over the past fortnight.
I am hoping for a good week ahead but conscious of the fact that many of the shares in my portfolio (especially the index builders Persimmons and Barratt) are stretched technically to the upside. The latter are sitting at a 1.618 extension of the last pullback. JD Sports is getting close to a 2.618 extension of the last move. The Plus 500 debacle has increased my vigilance regarding giving back good profits. Many years of intraday trading on indices and forex has instilled the resilience to be calm and allow the market to decide.
Enjoy the Bank holiday
David Paul May 24th 2015