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Posts Tagged ‘Stock Market’

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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Time for a breather.

Sun, 2nd Oct 2016 Leave a comment

Chart of FTSE-100 index at 30th September 2016As predicted in my last post, the FTSE did pause for few weeks, but I was one dip too early with my 240 point drop. Looking ahead, I see similarities to previous situations where the FTSE has gone on to surge strongly after a long dip. The index’s peak (at 7100) was over a year ago now and the decline we experienced after that, bottomed out around 20% below that peak, which is the sort of slump that should clear out a lot of sellers. There is quite a lot of negative sentiment about at the moment despite the fact that the FTSE is up 15% in three months, which means there is still lots of potential for further gains as these bearish investors get converted to bulls. It is said that the stock market “climbs a wall of worry” as you need doubters to get converted into buyers in order to push prices up further. When you reach the point where everyone is convinced that the market is going up, there are no more new buyers and the trouble starts!

I am quite positive at the moment and believe the the 15% leg up we have just seen could be the start of a major boom. In the run-up to the 1987 and 2000 crashes there was a three year period where the FTSE doubled from a low point after a significant decline and I suspect that we could be about to see that again. As I am expecting another crash soon, I think it is quite possible that the FTSE could hit 12,000 within three years and go on to 14,000 from there, before the market finally realizes that the western world is bankrupt and the index plummets 85% (as seen in the 1929 crash). The bond market is obviously in a bubble and speculators have started to question whether the bull run will continue much longer and so may look for somewhere else to put their money. This could boost stock markets strongly (until the bond market finally collapses!). The yield on many government bonds has turned negative, which means that prices are so high, simply holding on until the bond matures will lose you money. Speculators are relying on the “greater fool” to sell on to, at ever higher prices, in order to make money and, if they can’t find these people any more, they will move their money to other markets.

In the short-term however, again looking back at this point in previous booms, I expect the FTSE to fall back to support at 6,700 for a few weeks before making further progress.

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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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