FTSE didn’t go quite to plan, but I was close!

Thu, 14th Jul 2016 Leave a comment

Chart of FTSE-100 at close on 13th July 2016Well, I was right to call 6410 the peak for a couple of months, though the index showed more volatility than I expected. The low for the period was slightly below my call, at 5,923 versus 6,000 and the low for the first dip was also around 50 points lower than I predicted. I was also right to call a final dip bottoming out at about 6,000; who’d have thought that the FTSE would surge (after a couple of days of mild panic) in response to an unexpected Brexit vote? Brexit is far from a done deal though, and I wouldn’t be at all surprised if Teresa May, the new UK Prime Minister, finds a way of avoiding going through with it.

In the short term, I see the FTSE taking a breather after its recent run; I am looking for the index to pause at its current level, then drop back 240 points or so to below the 20 day-moving-average (the green line above). Thereafter, I see good progress being made, perhaps to around 7,400.

In the longer term, the US and UK stock markets don’t seem as overvalued to me as some commentators think: the Dow Price/Earnings Ratio is still below 20, which is above average, but well below danger levels. Given the ridiculous prices of western government bonds, with yields going negative, I think that stock markets still have a long way to go. A P/E of 30 is what I generally consider expensive and I suspect that this value will be exceeded significantly if share prices get as silly as bonds. So I still wouldn’t be surprised to see the Dow going well over 30,000 in the next few years and the FTSE reaching 14,000 before the financial system spectacularly falls apart.

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FTSE exceeds my target.

Mon, 2nd May 2016 Leave a comment

Chart of FTSE-100 at close on 29th April 2016The FTSE has peaked a couple of hundred points above my target. It very nearly made another instance of my peak pattern (the first dip was a couple of points below the 20 day moving average rather than just above), but it is close enough for me to predict the next couple of months movement based on previous instances of the pattern. Where the peak is 5% high I would expect to see a small, slow decline so I am revising my low target to 6,000 from 5,800. In the short term, we should see the current decline bottom out at around 6,160 (just above where the 20dma crossed the index on the way up to the peak) then bounce to just above the current 20dma (6,282). Thereafter the index will probably hug that average, (which should decline slowly) spiking below a couple of times until a third decline which leads to a bottom just above 6,000 in two to three months time.

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The FTSE has nearly reached my target

Sun, 3rd Apr 2016 Leave a comment

Chart of FTSE-100 index at 1st April 2016I suggested in my last post that I was looking for a bounce in the FTSE to its 200 day moving average and we are nearly there. The index has flattened off its rebound now and dipped a couple of times below the 20 dma which suggests to me that the rally is running out of steam. I wouldn’t be surprised therefore to see another dip soon to support around 5,800. The rebound in the oil price (which has been driving the stock market) has faltered in recent days with Saudi Arabia suggesting it is less likely to cut output than had been thought. The fact that the FTSE has climbed steadily over the last six weeks or so may suggest that the worst is over and we may not see the further lows I was expecting, but I suspect another small dip is in order before we make further progress. Should the index continue sideways for some time however, that could suggest a sharper fall in the offing.

Chart of Dow Jones IA at 1st April 2016

The Dow has bounced much more strongly than the FTSE and is looking overbought on its technical chart (relative strength over 80). It has been hugging its upper Bollinger band for some time now and looks ready for a dip to its 200 dma or lower Bollinger band.

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Further falls ahead?

Mon, 22nd Feb 2016 Leave a comment

Chart of FTSE-100 at close on 19th February 2016.The FTSE did bounce off the support level I called before Christmas, rising over 400 points in a modest rally. However it has more than erased those gains since, with sentiment over slowing Chinese growth, falling oil and rising concern over US interest rates becoming ever more negative. With sentiment so negative it was perhaps not surprising, as a contrarian, that we’ve seen another bounce over the last week or so. The FTSE is sitting well above its 20 day moving average at the moment, so the decline seems to have been arrested for now and it looks like we could hit the 200dma in the near future. After that though, I suspect we will see further slides as I cannot see sentiment improving significantly before the June 23rd EU referendum. There are likely to be plenty of scare stories from both sides to ramp up the uncertainty prior to that and there is nothing the markets like less than uncertainty. In addition, investment trust discounts were holding up very well before the FTSE broke below support just under 5,900, but have increased significantly since, suggesting that there could be further market weakness to come.

Chart of Dow Jones IA at close on 19th February 2016.The Dow has bounced off its August low, so hasn’t broken support yet, but the concern over China, oil and the Fed’s intention to continue interest rate rises is likely to mean that it will in my view, though probably not until after it has hit its 200dma. I don’t have any target in mind for a low yet, so will just have to play it by ear.

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All aboard for the Santa rally?

Sun, 13th Dec 2015 Leave a comment

Chart of FTSE-100 at close on 11th December 2015The FTSE has come down as I predicted, though it didn’t follow the pattern I anticipated. We didn’t get the final peak, which would have completed my peak pattern, so I didn’t go short. The index is near its August low (lower than I forecast) and looks likely to hit that level again this week. However, there is the December Federal Reserve Open Market Committee (FOMC) meeting on Wednesday where the US could (finally) raise interest rates. Although most commentators seem to be putting the recent slide in the FTSE down to falling oil prices, I suspect that an end to the uncertainty over US interest rates could prove a turning point. Realistically, the Fed has to raise rates this month or lose all credibility as they have been threatening it for well over a year now and they do not really have any more excuses with recent economic data being quite strong. So all aboard for the Santa rally!

Chart of Dow Jones IA at close on 11th December 2015The Dow on the other hand is well above its August low, presumably due to the recovery story prevalent across the pond. This index has just dropped slightly below its lower Bollinger Band on the technical chart so a turnaround could be due here too. Recently the Dow has been responding positively to good economic news, so I think we can say that, unlike Europe, which is still hooked on stimulus measures, the U.S. market is now viewing interest rate normalization as a good thing. That said though, I can’t see rapid rises following on from this month’s decision (if it comes). I suspect that rates will stay low for quite a while yet, so, overall, I am still quite bullish for the medium term.

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Another peak signal in the FTSE-100?

Sat, 7th Nov 2015 Leave a comment

Chart of FTSE-100 at close on 6th November 2015The FTSE is forming another of my peak signal patterns, so I wouldn’t be surprised to see a modest fall back to just above 6,000 soon. Should the index move back above 6,400 next week, I would be tempted to put a bit of money into a short ETF such as Societe Generale’s 5UKS. Looking at the technical chart of the Dow, we see that it is looking overbought (RSI above 80) and so due a dip. The FTSE has lost ground against the Dow in recent weeks and so hasn’t reached its 200 day moving average (unlike the Dow) so my thought that that might be the turning point for the next dip looks like it was wrong. On the other hand though, the FTSE may not fall as much as the Dow on the way down. This would be consistent with the fact that the peak signal is on a relatively modest bounce at the bottom of a sizeable dip and so not suggestive of a large fall to come, as in the 1990 example of the pattern.

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Is the panic over?

Sun, 11th Oct 2015 Leave a comment

Chart of FTSE-100 at 9th October 2015The FTSE has rebounded strongly now and, although we didn’t get the spike minimum I called in my last post, it looks like I was right to call the bottom. I’d be surprised if the index goes straight back to 7,000; I suspect there will be at least one more significant dip before we reach that level, perhaps at the 200 day moving average (currently at 6,686). We could still make 7,000 by the end of the year though. The markets seem to be focussed on US rate rises again, but I still believe that these will not be significant – it’s all about the mood. There is uncertainty over the timing which is causing some anxiety, but, once it actually happens, after a probable initial wobble, I think the markets will take it in their stride.

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