Indices fall sharply whilst gold holds steady

The start of the trading week has seen sharp declines across several indices. Concerns amongst traders indicate that this could be the start of a much awaited correction in the markets. May seasonality factors have kicked in later than expected and could add further weakness to help the bears take the markets lower in the coming days.

FTSE 100 unable to break above 6000
Here in the UK the FTSE 100 has failed to climb above the key 6000 level. Today’s sharp fall indicates that the bears have taken control after seeing the index create a reversal bar in Friday’s trading session. What seems to be apparent is that the intermediate term chart is showing signs of a consolidation. This would require the bears to take the index below 5850 in order to see a significant correction take place. Support comes in at 5600 and below this we have 5445. Unless the FTSE climbs above 6000, which is looking unlikely this week, the odds are that momentum will continue to the downside.

Dow Jones in a five-wave pattern
The US Dow Jones has completed its fourth wave with a high at 12633. There is a clear pattern forming, suggesting that the current move is a fifth wave on a daily time frame. This would mean that the index is likely to decline lower towards 12300. Several technical indicators are still bearish and now that the index is trading below the 20-day moving average with momentum studies pointing lower, the Dow remains weak. Once the fifth wave has been completed this should be followed by an ABC correction to the upside followed by another leg lower.

Gold holds steady
With uncertainty in indices, gold prices have held above the $1,510 level. However given the sharp declines in the indices one would have expected a more positive move with gold. Technical patterns in gold are showing signs of consolidation between $1,525 and $$1,460, and until a clear breakout of this area has taken place there could be choppy price action for the next few days. Overall the intermediate term trend still remains bullish unless $1,462 has been taken out.