FTSE 100 – Bull or Bear?

By Pete Southern in LiveWire Economics Blog | January 9, 2008 20:40 |

A question that vexes nearly all traders is what defines a bull or bear market? You can choose from a myriad of methods and analysis, both technical and fundamental. There are the old favourites, P/E ratios vs Bonds, Elliott Wave theory, Dow Theory, Cycles, Trends,  50 and 200 daily moving average crosses, the list grows almost daily.  You could spend a lifetime reading all these methods and probably still not answer the question.

So lets not try. Thats right, lets not bother trying to fathom the question. Instead lets look at the price of the index. Cut out the noise, the infighting between bulls and bears, lets leave it all behind.

Here is a daily chart of the FTSE 100, no lines, no indicators, no trendlines -  just the open, high, low and close. Now ask yourself a simple question, is it a bull or bear market?  Without those lines, indicators, numbering counts etc that we love so much the chart becomes much clearer. If you truly looked without bias, the chart doesn’t say bull or bear. It just tells you what the  range and price was for each day since March 2006. Please leave your pre-conceived thoughts behind and just look at the chart:

Nod slowly if you see the following:

A line connecting the June 06 low with all the lows into January 07 and then connects all the tops until June 07.

A line across the chart at 6000.

A line connecting the highs from October 07 to present and another line connecting the lows in August  and November 07 to present.

A line connecting the top prices in ’07.

Here is the nasty bit. If you see them does it mean anything?  Did it tell you anything about where the next price would be printed? Or is it just your perception, the need to see a pattern continue that makes you think it will go higher or lower on the next print?

Here is the really nasty bit. If you didn’t see the patterns, do you see them now after reading the descriptions? 

Below is another chart, again the FTSE 100 with a 20 day moving average and a Williams % range indicator over the same timescale.

Which chart seems the most logical? You will notice I didn’t say which chart looks bullish or bearish.

Unfortunately, the human mind works in a way that goes against the trader. We see patterns and shapes that may not actually mean anything. We just associate, subconsciously, the pattern in our view with previously observed phenomena.

Can 2 wiggly lines added to a chart really affect our trading minds that much? Being aware of the difference between what we want to see and what is actually in front of us can save a trader much heartache and capital.

So, back to the original question, is it a bull or bear market? Whichever way its viewed,  one in every two of us will disagree on the answer.

Market Snippets
ARMONK, N.Y. (AP) – Bond insurer MBIA Inc. said Wednesday it will take a $3.3 billion write-down on the value of its debt holdings, including collateralized debt obligations, cut its dividend and sell $1 billion in new debt as a way to maintain its crucial credit rating.

MBIA said it will take $737 million in losses and related expenses for the fourth quarter.

As part of a plan to improve its capital position to maintain an “AAA” rating, MBIA said it will cut its dividend to 13 cents per share from 34 cents per share, saving about $80 million in capital per year. That “AAA” rating is widely seen as critical to MBIA’s remaining in business.

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CTA/managed futures products) for 2007, with the Aggregate Average up 10.86% y-t-d.

The HFN Emerging Market Average ended 2007 up 20.83% – the 3rd consecutive year the average has topped 20%. HFN Energy Sector Average was up 17.53% y-t-d and HFN Macro funds had their best year
since 2003, up 12.40%. Other solid performers were the HFN Global Average up 10.64% and the HFN CTA/Managed Futures Average up 12.70%.

On the low end was the HFN Convertible Arbitrage Average up 2.88%.The HFN data base consists of over 7,900 current hedge funds, fund of funds and CTA products.(MNI)

Commentary by Mick Phoenix

on behalf of An occasional letter from The Collection Agency

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. The views in the article are for informational purpose only. 

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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