Strategic withdrawal

Anyone unconvinced of the value of support and resistance lines needs to look at the FTSE chart. Going right back to March 2009 the line I drew has underpinned the trajectory of the current bull market. Since the beginning of this year, twice price action has tried to break down through support and twice that line has marked the point where a pull back has halted to create a higher low.

The point of drawing support and resistance lines is not that they are always right. What they do is alert you to a moment where the price action MAY change direction.

The imperfection of the methodology is demonstrated by the S&P 500 where the price action broke down through support before breaking back up. I will now redraw my support line to take into account the new pattern of price movement. (The new line is in blue.) A determined break down through that line Could be the beginning of the end. There are two more support lines to go and then we could be facing the end of a bull market that stretches back to March 2009. Five years is a very long run indeed.

I face the prospect of a bear market with equanimity. I hold almost no shares at present. I ditched my holdings a few days ago. If my exit was premature. I will buy again but I will be ready to dump my holdings when danger looms. Vector Vest advises that the end of the bull market is likely to occur when forecast earnings growth turns negative. We are not there yet but it may soon come. The bottom of a bear market offers wonderful bargains and the opportunity for great profits.

Today I ditched my remaining gold shares. They made me 5% in a month so I am not going to complain. The market may well bounce off support in which case I shall be back in there. So now I have a clean slate

and am seeking the next challenge.