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The FTSE refuses to follow my script!

Sat, 30th Nov 2013 Leave a comment

Chart of the FTSE-100 at 29th November 2013The FTSE has failed to complete the peak pattern I was looking for in my last post by staying below the 20 day moving average (20dma – the green line). Without the close above the 20dma which would have indicated a sharp drop was in the offing, I can only suggest further sideways movement is likely in the short term. The index regained 6,000 nearly three years ago now and the ten percent gain we have seen in that time represents pretty poor performance relative to the Dow which is up around thirty eight percent in the same period.

Chart of the Dow Jones at 29th November 2013It is true that there has been more QE in the US, which drives up prices, and better economic growth, but things may be changing. Recent GDP and unemployment figures in the UK have been much better, so perhaps the FTSE may start catching up lost ground soon (assuming it can overcome its jitters about higher interest rates). Looking ahead I still think we could see strong gains on both sides of the Atlantic in the medium term with the final blow-off phase off this rally taking the FTSE to 8,500 and the Dow to over 20,000. That would probably put the cyclically adjusted price/earnings ratio (which measures share value against company profits) at around 30, which is the level seen prior to the 1929 crash. I feel that we are unlikely to re-attain the levels seen in the dot-com boom as there is too much fear, uncertainty and doubt (the FUD factor) concerning the debt crisis around at the moment. That could change though, as the old adage is true: “the market can stay irrational longer than you can stay solvent”.

It looks like the dip is back on!

Wed, 20th Nov 2013 Leave a comment

Chart of FTSE-100 at 19th November 2013The FTSE has oscillated around the 20 day moving average (20dma) over the last ten days or so which is usually a sign that the rally has run out of steam. It is actually forming another instance of my peak pattern; we just need a bounce back over the 20dma (probably to about 6800) for the top to be in. I am not surprised that my most recent view has gone out of the window as it was largely inspired by the conspirators messages and so should have been viewed with more scepticism. So it’s back to my original plan for a dip of around 1000 points over the next couple of months or so. After that however, I think we could be on for 8500 within 18 months or thereabouts.

The FTSE has recently been losing ground against the Dow (which has continued to make new all-time highs) and one reason for that has been last week’s positive economic news. The better than expected UK GDP and unemployment figures have brought forward expectations of interest rate rises by about two years. Higher interest rates obviously increase debt costs for businesses and reduce profitability, so lowering share prices. Carl Icahn, the prominent Wall Street investor, recently commented on the fact that ultra-low interest rates are flattering the Price/Earnings ratio (a measure of share price value relative to company profits) of US stocks so that he thinks the market is much more overvalued than it currently looks on this measure. He certainly spooked the market, but I am not going to predict what the excuse will be for the dip I am forecasting, though I will observe that the US budget difficulties still have yet to be resolved.

Time to “buy the dip”?

Fri, 8th Nov 2013 Leave a comment

Chart of the FTSE-100 at 7th November 2013The FTSE has fallen below its 20 day moving average today (20dma – the green line) which, if I am right about it being at the start of a new bull run, would be a good time to get into the market. During an upswing the index tends to sit on top of the 20dma, dipping below only occasionally, so there should be a good chance of today being the low for a few weeks. Given how far the market has risen in the last four and a half years and how expensive the Dow is already looking, if the 440 point gain we saw last month is the first leg of a bull run, I suspect that it will be the final blow-off before the sovereign debt crisis comes to a head and the markets finally crash.

The US non-farm payroll number for last month is out at 1:30pm today and, ordinarily, this can move the market. No one knows how much this number will be affected by the government shutdown though, so I think it might be difficult for the market to read the usual significance into it and there may be little reaction.

Categories: Stock Market

Is the stock market mood more bullish than I thought?

Sun, 3rd Nov 2013 Leave a comment

Chart of FTSE-100 at 1st November 2013I said last week that the FTSE was looking toppy and I still expected it to stay in its recent range of 6800-6000, but I have changed my mind about that. It has had a bit of a pause this week, only rising 13 points, but I have read a couple of articles in the financial press that suggest the market’s mood is a lot more bullish than I thought. One even compared the atmosphere to the euphoria before the 1987 crash! As an amateur, it is difficult for me to gauge the market, but the Dow does seem to be losing its fear of the dreaded taper, slipping less than one percent this week in response to the “disappointing” Fed statement after the FOMC meeting on Wednesday. It seems increasingly likely that the demise of QE will be repeatedly pushed back for some time to come and, in the UK, the return of economic growth is cheering the professionals, so maybe it is time for the FTSE to break out of its recent range.

The recent 400 point rise, with only one down day, is extremely strong and suggests that the mood is very positive, so I am now predicting that there will be no return to 6000 and the FTSE will continue to rise. What I said last week about the CAPE still stands though, and I don’t expect a 50% rise like we saw in 1987, but perhaps 30% is possible (as measured from the recent low), i.e. the FTSE could reach 8000 and quite quickly.