Robin Griffiths: sell FTSE at 5,400 ahead of September death cross

The bull periods are short and the bear corrections relatively long. The current rally phase started in March 2009, it was fantastically strong, but is now over. The fall in June was the breaking point.

Seasonal deviation

The markets have a strong seasonal deviation. They normally peak in May. This year it was clear that exhaustion was setting in during April. They fall back and then start a mid summer rally.

This starts in July and normally lasts until early August. We even expect a special shape to appear. This is purely technical and has nothing to do with the underlying fundamentals. If you like the shape is caused by the cogwheels of the market itself. The pattern is of a rise, followed by a set back, then the rest of the rise. The entire thing is relatively symmetrical. On this basis the final leg will be over by 6th August.

September falls

Using the FTSE 100 index as an example the low in June was at 4,800. The first rise peaked at 5,287 on 14th July. The fall then went to 5,090 on 20th July. If the next rise is the same as the first then a top of about 5600 is possible. We would be willing to sell anywhere above 5,400.

We expect the market to weaken in August and then fall in September. If the fall matches the one from April, as is likely, then it will be about 16%.

If the top is between 5,400 and 5,600 then it follows the next lows must be between 4,400 and 4,600. The best guess for the timing of this is late October.