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Next stop 6000 for the FTSE?

Sat, 7th Feb 2015 Leave a comment

Chart of FTSE-100 at close on 6th February 2015Probably thanks to Eurozone quantitative easing (QE, or money printing) the pre-Christmas dip did prove to be a short-term panic as I suggested it might be in my last post. The FTSE regained some lost ground against the Dow, though in the last few days it has hit strong resistance again just below 6,900 while the Dow carried on rising. Some commentators seem the think that the FTSE is about to break through the 7,000 level, but I think this unlikely. The resistance at 6,900 seems very strong to me and I believe that a more likely scenario is a dip below 6,000 soon so the the index can take a run-up at the 7,000 mark, breaking through in the second half of this year. I think that Greece is unlikely to get agreement with the EU on its desired debt relief and the threat of default and subsequently being kicked out of the Eurozone will suppress stock markets. I am hoping for another of my peak signal patterns over the next few weeks, as conditions seem ripe for it, and looking back at previous long-term sideways movements such as we have had recently, it is quite common for the FTSE to dip significantly before making further progress. If the Greece question can be resolved one way or the other, then the ECB QE money could boost the FTSE, and, as this article suggests, a Greek default could further boost stock markets by transferring money from Eurozone periphery government bonds to the stock market due to fear of default contagion. Consequently, I still think that the prospects for the FTSE are pretty good in the medium term. The fact remains, however, that the Western world is bankrupt and there will be a reckoning at some point!

Chart of Dow Jones index at close on 6th February 2015ECB QE has not proved quite such a boon for the Dow as it has boosted the dollar relative to the euro and thereby made US companies less competitive. If a Greek default suggests that Europe is about to disintegrate though, I expect the Dow will recover by virtue of being seen as a safe haven.