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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It’s looking like a spike minimum.

Sun, 6th Sep 2015 Leave a comment

Chart of FTSE-100 index at 4th September 2015We’ve had a bounce, as I predicted a couple of weeks ago, and it is looking like a typical spike minimum. Obviously there are no guarantees, but I am optimistic that the FTSE will bottom out no lower than 5,850. China troubles seem to be less newsworthy now and we are moving back to focussing on US rate rises so I am hopeful that the panic may be fading (also as predicted in my last post). Any rate rise will be very small and probably not followed quickly by others, so, in practice, it will have little effect. The market’s anxiety over it is overdone, and, in time, I suspect that a return to “normality” will be seen as a good thing. This dip looks like the sort of clear out that often occurs after a long period of flatlining, prior to further progress being made, so I still believe that stock markets could do very well over the next two or three years. I am looking for the trailing twelve month price-earnings ratio (TTM P/E) to hit 30 before we get the real crash. It is only around half that value now (about average), so markets could still double from here!

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We’ve (finally) hit my target!

Sun, 23rd Aug 2015 Leave a comment

Chart of FTSE-100 at 21st August 2015The FTSE has reached the 6,200 level I called as my next target two months ago, though It has taken a lot longer to get here than I anticipated (and two weeks ago, after two bounces well above the 20 day moving average, I would have said it probably wouldn’t make it at all). After nine straight down days however, I think we should see a bounce this week, but I still feel my call of a 15-20% fall is reasonable and this would see the index bottoming out just below 6,000. That said, this correction has received a lot of mainstream media coverage which suggests that it may have mostly run its course, so it may not last too much longer. There has been talk of a full-blown crash, but the FTSE-250 and investment trust discounts are holding up fairly well so I don’t think we have entered a bear market. The recent sharp sell-off was triggered by China’s devaluation of the Yuan and fears over their growth slowing down, but I suspect that, as is often the case, these fears have been overdone. The devaluation will reduce inflationary pressure in the countries China exports to, so may delay any interest rate rises there and it may be that this increased uncertainty is adding to the doom and gloom atmosphere.

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It’s lose – lose for Greece!

Sun, 5th Jul 2015 Leave a comment

Chart of FTSE-100 index at close on 3rd July 2015As I predicted in my last post, the dip in the FTSE-100 index has continued. Greece votes in its referendum today and it could go either way, but it probably won’t make much difference: vote “Yes” and the government has threatened to resign – vote “No” and they will be even more obstinate than before, leading to uncertainty either way. Staying or leaving the euro probably won’t make much difference either. Stay, and the Greek people will have to accept bailout austerity, leave, and a devalued new drachma will cut purchasing power. In addition, Greek banks are insolvent and will have to be bailed out, but by whom? The EU won’t want to pour even more money down the drain and the Greek government doesn’t have the means. It seems to me that both sides are trying to avoid Grexit, but that it is the best solution for all concerned. The EU made a mistake in allowing Greece to join the eurozone in the first place and should admit it and let them go, and Greece made a mistake in pretending that its economy was anywhere near sufficiently aligned with Germany’s (or ever would be) and should accept that it doesn’t belong in the bloc. The threat of contagion (other struggling countries being forced out) is minimal I think, because everyone can see that Greece’s situation is unsalvageable due to its impossible debt mountain. Offering debt relief to keep Greece in is more of a risk, because then other struggling countries will want the same concessions (which is why Germany is so set against it). All-in-all it is better to write off the issue as a huge error and try to keep everyone else in line by dismissing Greece as an exceptional case.

In the longer term, the rest of the Western world will be in Greece’s position in a few years anyway as our debt piles are still growing rapidly, so it would probably be prudent for them to go now while there is still relative stability. Austerity isn’t just an issue in Greece; most Western countries have been living beyond their means for decades and their populations have got so used to life on credit that it has become “normal”. There is so much resistance to cutting back on what people feel are their entitlements that I cannot see us avoiding a financial meltdown. We are seeing now in Greece what happens when unsustainable debts are called in, and this is the fate awaiting the rest of us unless radical action is taken quickly.

So I think the FTSE will continue to decline and I am sticking to the target levels given in my last post. In the event of the Greeks voting yes and the government doing a u-turn by not resigning and capitulating to the troilka’s demands I suppose we could see a bounce, but there is still the problem of the banks being bankrupt so I cannot see it lasting.

Is Greek euphoria over already?

Wed, 24th Jun 2015 Leave a comment

Chart of FTSE-100 at close on 23rd June 2015There was a significant surge in stock markets on Monday as the Greeks announced concessions in order to secure a bailout deal with the troika. It should be remembered however, that Greece is in the position where it is needing to borrow from Peter to pay back Peter. Even if a deal is done this week, it is only a short-term fix and the same problem will re-emerge for future bailout repayments. The Greek economy is still a basket-case and their debt is still unmanageably high. In addition, there is a slow-motion run on Greek banks which could cause major difficulties very soon. So I am expecting the current dip in the FTSE to continue with the next stop being 6,200 in the coming few weeks. Ultimately, I think the uncertainty over the Greece issue will push the index below 6,000 in the next two or three months. Only Grexit or massive debt relief will actually solve this problem, but, when that happens, we should see a significant relief rally.

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