A whiff of caution

A HINT of caution is entering the assessment of future market behaviour. Inflation remains stubborn, and this reduces the probability of a fall in already high interest rates. US’ gross domestic product has slipped, although not enough to cause a market rout.

However, after months of unbridled enthusiasm, slivers of doubt are creeping back into the market.

Sometimes the patterns of index behaviour provide a clue both to the increased probability of a market retreat and to the potential levels of that retreat. The most infamous of these is the head-and-shoulders trend reversal pattern. It is followed by a rounding-top pattern. Both patterns are used to set downside targets.