WHERE is the market going next? Though not an exact quote, Sir Winston Churchill once wrote that to know where you’re going, you have to know where you’ve been.

So where have we been since August 26 when, soon after what turned out to have been the lows, I forecast that the Standard & Poor’s (S&P) 500 and FTSE 100 indexes, then 1,462 and 6,220 respectively, would not only test their summer highs, but might also make new ones? That’s where we have been this week: up at the 2007 highs. The reasons for the forecasts – the same in both indexes – are now history, and in this newspaper’s archive.

Though not a betting man (Churchill also wrote: “The potential for loss when gambling on certainties is infinite”), I am willing to make a small wager that despite many readers greeting it with relief, belief in those forecasts was not widespread.

The S&P has overcome neither July 2007’s high nor the trend-line from March 2000’s high by 2% (a close at 1584.5 being needed), but it has overcome what until recently had been the previous all-time high in March 2000.

Provided the S&P closes, on any day (there is no time limit) at 1,585 or higher, while not guaranteeing anything – there are no guarantees in this business except when you make money you got lucky, and when you lose it, it’s your own fault – that will reconfirm the continuation of the bull market and refocus attention on the inverted head and shoulders illustrated in the chart above.

The inference to be drawn from it is a no-time-limit advance to 1,669 (this pattern is the most reliable of all technical reversals, but if they all worked, technical analysts would all be billionaires by now).

But the S&P got vertigo the last two times it was at current levels. A failure to close at 1,585 and one at 1,526 would imply failure to overcome July’s high, while one 2% beneath August’s low would confirm the range since February as a double top and, simultaneously, that a bear market had started.

Why mention bearish possibilities when the market looks so bullish? For the same reason that I carry an umbrella when the sun is shining: if it starts raining, what’s the point of having left it at home?

I think that 1,585 will be reached, but what I think doesn’t communicate itself to the market, which always does its own thing – and in any case the technician’s job is not to think but to interpret what the market is saying about itself.

Thinking what the market ought to do is frequently the cause of the largest losses. Knowing yourself is what matters, and if you don’t, the market is an expensive way of finding out.

Bullish as the market looks, there is the problem of the October syndrome. In case you haven’t heard about it, since 1897, whenever the year has had a final seven – 1897, 1907, 1917, etc, with the exception of 1947 – October has always been a down-month, and although it has been an up one so far, there are still 13 trading days left – and if a week is a long time in politics, in the market it can seem like a lifetime. But even if there is a fall this month, it is likely to be made good by the regular upsurge in December and January.

I make no apologies for taking up so much space on Wall Street because not only does its chart show it is outperforming London, but also because when the former goes up or down, the latter follows suit.

What about the FTSE 100? Friday’s close was fractionally below 2007’s high, posted in June, but this decade’s 6,795 high still beckons – or threatens.

Why “threatens”? Because although records exist to be broken, previous highs are always potential resistances until they have been broken by 2%. What’s the reason for that? Well, like everything else in technical analysis, the answer is “empirical observation”.

Technical analysis is long on observation but short on theory, thank goodness, whereas fundamental analysis is the opposite, explaining why many strategists in the latter are frequently long when they should be short and short when they should be long.

To overcome June 2007’s 6,732 high, a close at 6,867 is needed. If posted, the door to December 1999’s all-time high will swing open. That high was 6,930. The first sign of a failure to overcome 6,732 would be a close at 6,597.

In case you are thinking that I am talking with forked tongue– one saying either, the other, or– forget it.

There are times, like two months ago when I put myself on the line with a very firm forecast. There are also times like now when, faced with potential resistance (resistance is always potential), the wise technician must hedge; nobody knows whether resistance will work until it has succeeded or failed.

Brian Marber’s book, Marber on Money, is published on November 12 and will be part-serialised in advance in The Sunday Times

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