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I think the FTSE has further to fall.

Sun, 13th Nov 2016 Leave a comment

Chart of the FTSE-100 at close on 11th November 2016So, it’s Trump then. I can’t say I’m entirely surprised, as people who want change are significantly more motivated to turn out and vote than those who believe in the status quo. The markets seem undecided as to how to react however: Dow futures were down 1,000 points as the result became apparent on election night, but the Dow actually closed up after trading on Wednesday! The FTSE-100 gyrated similarly as the stock market decided it might quite like Trump’s tax cut and infrastructure spending plans. The bond market liked them less so though – inflation is likely to rise and his plans are unfunded so government borrowing will probably rise significantly as well. Never mind, this will help bring about the realization of the West’s bankruptcy all the sooner!

Turning to the FTSE, I think there is likely to be further to fall after the peak pattern I noted in my previous post. If we are at the start of a bull run, then a 10% correction at this stage would be typical, which would take us down to 6,400. There is a little chart support at this level (the April peak) so I’ll make that my initial target, but I wouldn’t be surprised if the index went a little lower. There is strong support at 6,200 however, and I would expect that level to hold. If it didn’t, then I would start to question my belief in the bull market. The index won’t fall in a straight line though, and, in the short term, I suspect that there may be another bounce from just below the last 6,693 low to just below the 20 day moving average this week.

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FTSE-100 peak pattern spotted!

Wed, 2nd Nov 2016 Leave a comment

Chart of FTSE-100 index at close on 1st November 2016My call for a breather in my last post was completely wrong, with the index taking off again. However, one of my peak patterns has occured in the FTSE since then (one small dip just above the twenty-day-moving-average, followed quickly by two just below) so I am now looking for a larger dip. I can see an obvious trigger for this: the US presidential election next week. Trump is the great unknown and a victory for him could cause mayhem. The polls are tightening, which could depress the stock market in the run up to election day and, if Clinton wins, this could be my dip, prior to a relief rally after the election, as she is the establishment candidate and a friend of Wall Street. If Trump wins however, there could be a much larger decline after the election as no one really knows what his policies are yet.

As for the December 14th Fed meeting where the next US interest rate rise is widely anticipated, this is still some way off, but it could also have a significant effect on the markets. Ordinarily, stock markets don’t like increasing interest rates as they increase companies costs, but bonds markets don’t like them either and this could increase the amount of money coming out of bonds and looking for a new home. Consequently, if this money finds its way into the stock market, the effect there could be limited or even positive.

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