FTSEMib: the gist of the discussion

By Fabio Pioli, professional trader, creator of Miraclapp, the largest extra income platform

The gist of the discussion on the possible future of the FTSEMib index is summarized in the graph in Figure 1. It shows that the Italian market has been in a very long rectangle-shaped side which went from the extreme high 25,000 points to the extreme low 12,500 points for 13 years.

Fig 1. Future FTSEMib – Monthly chart

The technical analysis (which can be considered reliable on this point) says two things: the longer the lateral the stronger the subsequent direction and the finish line of the broken rectangle is equal to its heightso 37,000 points if broken up, 0 points if broken down.

So the gist is this; very simple in appearance. But what are the implications? They are very relevant: crucial.

In fact, if the break of 25,000 points were true (now we are in the 29,000 area), another 8,000 points at least i.e. almost a +30% appreciation would be within the bounds of the future on the Italian index.

But if the break was a false break (which exists in the stock market) there would be an about-face (not rapid) and the final destination would be zero.

It is therefore necessary to have tools available that allow us to discern between a true or false rupture and even more important is to have a correct strategy for this historical situation.

Our criteria for discernment (interpretive level, not at an operational level, we specify; because at an operational level we have the signals) are: we talk about an increase if there is evidence of several days with “escape” volatility (+3%, +4%, +5%); we start talking about a decline if the 28,000 points are broken (with a certain configuration).

All very easy.

At a strategic level everything is even easier: we must remain attached like glue to stocks that do not show signs of a trend reversal. Why? Because we must remain open to the hypothesis of an increase, which would occur in a speculative bubble (and therefore could not be easily pursued) and instead close ourselves to the hypothesis of a reversal of a downward trend, both for the market in general and for individual securities (when in fact, a market reverses first some of them start and go down, then the others follow: the laggards).

While the most important part has been said, let’s finish the article with the graphic interpretation.

Last week we gave an interpretation about the decline and it was a hypothesis of a temporary decline (with Elliott it is expressed with the letters ABC).

The hypothesis seems true and whether it is a configuration to be finishedfor which it is therefore not contemplated to exceed 29,910 points now (Figure 2).

Fig 2. Future FTSEMib – Weekly chart.

whether it is an already finished configuration and therefore requires exceeding 29,910 points (Figure 3)

Fig 3. Future FTSEMib – Weekly chart.

it is always ABC and therefore a temporary bearish configuration.

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