Home > A Beginner's Guide to the Stock Market > 3: How Do I Invest? > FTSE-100 Peak Indicator Site Map Last updated: 21st December 2014

A FTSE-100 Peak Signal Pattern

 

Introduction

I have been watching the stock market, and particularly the FTSE-100 index, for over twenty-five years now and, in that time, I have observed a very reliable pattern in the FTSE which only occurs at the end of a rally (though I should point out that not every rally ends in this pattern!). It consists of a series of three small dips close together around the twenty day moving average (20dma - which must be rising), the first one stopping just above the line and the next two cutting through it. The 20dma is simply a line where each point is the average of the previous twenty days’ prices of the index or share you are looking at. It is a common indicator used in technical analysis.

Instances of this Pattern

Below are charts of the instances of this pattern that I have observed in my time watching the stock market. I have labelled the three dips 1, 2, and 3, the final peak P and the bottom of the subsequent decline B: (right-click on an individual chart to see a full size image)

Chart of FTSE-100 index peak in 2014
fig. 1  FTSE-100 index peak pattern in May 2014.
Chart of FTSE-100 index peak in 2013
fig. 2  FTSE-100 index peak pattern in February 2013.
Chart of FTSE-100 index peak in 2010
fig. 3  FTSE-100 index peak pattern in April 2010.
Chart of FTSE-100 index peak in 2007
fig. 4  FTSE-100 index peak patterns in April and July 2007.
Chart of FTSE-100 index peak in 2005
fig. 5  FTSE-100 index peak pattern in January 2005.
Chart of FTSE-100 index peak in 1994
fig. 6  FTSE-100 index peak pattern in January 1994.
Chart of FTSE-100 index peak in 1993
fig. 7  FTSE-100 index peak pattern in February 1993.
Chart of FTSE-100 index peak in 1992
fig. 8  FTSE-100 index peak pattern in May 1992.
Chart of FTSE-100 index peak in 1991
fig. 9  FTSE-100 index peak pattern in August 1991.
Chart of FTSE-100 index peak in 1990
fig. 10  FTSE-100 index peak pattern in December 1990.

Statistics Concerning this Pattern

Date of Pattern Time Between Dips 1 & 3 Duration of Peak P Height of Peak P Size of Drop Comments
May 2014 12 days2 days0.9% 4.5%Small peak; small decline
February 2013 13 days11 days4.1% 4.4%High peak; small decline
April 2010 10 days1 day1.5% 17.5%Small peak; rapid decline
July 2007 9 days1 day1.1% 11.8%Small peak; rapid decline
April 2007 5 days23 days3.8% 2.4%Exceptional instance; see note iv).
January 2005 11 days16 days5.4% 5.4%High peak; small decline
January 1994 16 days4 days2.7% 18.3%Medium peak; medium pace decline
February 1993 10 days7 days5.0% 5.8%High peak; small decline
May 1992 11 days1 day0.3% 16.6%Small peak; rapid decline
August 1991 9 days7 days5.5% 12.5%High peak; slow decline
December 1990 5 days1 day0.5% 5.2%Small peak; rapid decline
Notes:
  1. Duration of Peak P is the number of days the index closes above the moving average before making its high.
  2. Height of Peak P is the percentage rise from the bottom of dip 3 to the top of peak P.
  3. Dip 3 of the January 1994 pattern actually closed 1.1 points above the 20dma, but the index did go below it during that day’s session. It is so close that I include it as an example of this pattern (no rule is perfect in the stock market!).
  4. The bottom of the dip in the April 2007 instance was above the series of three dips and the peak was exceptionally long. This is unusual and I am wondering whether there is any significance to the double occurance of this pattern around the 2007 peak. Could it be a sign of a longer term change of market direction? (Anyone selling out at 6600 could have bought back at half the price two years later).

Observations

A sample of eleven is quite small from which to draw definite conclusions, but it would seem that where the final peak only lasts one day, a sharp decline is to be expected. Conversely, where it is five per cent or more, a small or slow decline is to be expected.