Double-Dip Recession ?

From the perspective of technical analysis, original predictions of a double-dip recession were based on the bullish price action starting in March 2009 being interpreted as a corrective pattern within the longer term down-trend.  The double-dip would have occurred if we saw a characteristic 3-wave retracement completing around 5,200.  What we actually saw was a 5-wave move pushing higher.  Whilst this could be a complex retracement pattern I think it is more likely to be a 5-wave impulse wave indicating the end of the bearish price move that started in 2007.

Based on recent price action, it looks like a head-and-shoulders reversal pattern has formed with the end of wave-4 marking the "left shoulder" and wave-5 marking the "head" of the pattern.

The first potential outcome is that this pattern will fail, indicating a temporary over-reaction to a "China crisis" with prices rallying to previous highs.

The second potential outcome is that the value of the FTSE will drop to about 4260, the level predicted by the pattern.  This drop would be consistent with a 3-wave correction to what is overall a bullish pattern - we'd then expect to see price recover the the highs that we have seen in recent weeks.

A bounce in price at 4200 does not mean we out out of the woods.  A more complex pattern would be that the move to 4200 would be the first-leg of a deeper 3-wave correction, taking us to prior lows - a double dip.  This outlook would treat the double-dip as the completion of a bullish harmonic pattern and represent some terrific opportunities for buying blue-chip stock.