Imminent Drop in UK Share Prices?

Sunday, Feb 04 2018 by
26

I'm always on the lookout for turning points in the market, even though I know it's tricky, and most people get it wrong - therefore should not try (me included). However, I've been lucky enough to duck some of the biggest drops in the last 18 years by reducing shares held when it looks like there are storms ahead. So I can't help but consider where we are at the moment.

The sustained drop in the US indices last week (particularly on Friday) made me wonder whether a bigg'ish drop might happen in the UK fairly shortly i.e. starting on Monday morning. Clearly, the UK markets will have some catching up to do with the US - so we should expect the FTSE indices to open lower first thing. But is it likely that they will continue falling for several days?

My instinct is that it's more likely than not. However having spent the afternoon looking over historical charts and data I don't think it's a foregone conclusion. Thoughts surrounding the possibility of a drop:

1. The US markets have had a fantastic run for various reasons and they look pretty toppy - so a fall there looks possible. But reviewing the long term FTSE 100 it doesn't look stretched at all.

2. The broad UK markets haven't been dragged up by the strong bull rally in the US. A big drop in the US won't necessarily mean a big fall here. We didn't follow them up so maybe we won't follow them down? I realise that this cuts against the usual accepted mantra of the US sneezing and the UK catching a cold. But maybe the UK has got so many unusual ongoing political/economic issues that the correlation between our stock markets isn't as strong as usual.

3. The stock market tends to dislike rising interest rates - and one would think that our rates being on an upward trend would make a fall more likely. But the actual level of interest rates is very low. And after reviewing the charts on interest rates against the level of the markets, it appears that in the recent past (the last 50 years or so) rising interest rates only have an affect on the market when they get to about 4%. Maybe not so far off in the US but miles off here. So perhaps not a big problem in the UK just yet.

4. Many stocks have already had significant pull backs in the last month or so in the UK. A further short term drop on Monday might mark the low point of our market and an excellent time to buy (when others are fearful).

Having typed this in I realise how unscientific it is, and I don't want anybody to take it too seriously - after all it's guesswork having looked over things for an hour or so (with a bit of a hangover). But I'd be interested in hearing what others think.


Filed Under: Market Outlook,

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21 Posts on this Thread show/hide all

shine66 4th Feb 2 of 21
1

Very good analysis, particularly on the disconnect between markets. Having said that, the US pull-back only adds to the recent nervousness here.

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gus 1065 5th Feb 3 of 21
2

In reply to post #309583

FTSE down about another 20 points overnight as of 06.45 on IG to about 7360. Dow is further down about 185 points (0.75%) to 25320 although most of this fall seemed to happen as the Asian markets opened midnight UK time). Appears to have stabilised over last six hours or so but could just be the calm before a further storm.

Gus.

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paraic84 5th Feb 4 of 21
3

Well this thread was very prescient!

I've been reading Mark Minervini's Stock Market Wizard book lately and note he remarks that at the end of the bull market it is high growth shares that come down the fastest first. A lot of those seem to be down 5 or 6% today.

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serg 5th Feb 5 of 21
2

In reply to post #310038

Funny because I read that paragraph just yesterday and this morning decided to lock in some profits. It does look like the market is taking a correction and it makes sense for me to have some powder dry for the next leg up.

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tony777x 5th Feb 6 of 21
1

I have also read Minnervini and he also says look out for the stocks that show resistance to the drop. KWS may be one. At one point 7% drop then recovered to only be marginally down. Very much a growth stock and alpha stock

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paraic84 5th Feb 7 of 21

In reply to post #310203

Boohoo.Com (LON:BOO) also didn't fare too badly today although it is near a previous support point so we'll see what happens tomorrow following the US sell-off today!

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vik2001 5th Feb 8 of 21
1

FTSE futures is down to 7200, preety horrific. tomorrow looks like it will be worse than today. I'm gutted I closed my short :(

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mmc071 5th Feb 9 of 21

Its gone beyond pretty horrific... Futures now -300 and 7030.

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letap73 5th Feb 10 of 21

In reply to post #310238

It looks a complete rout tomorrow - down to 7000.
I do not know much about shorting but can you set an overnight position on individual stock?

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vik2001 5th Feb 11 of 21
1

In reply to post #310258

yes you can set up a deal order if its allowed on that stock. be careful when shorting!

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letap73 5th Feb 12 of 21

In reply to post #310273

Again I am no expert - however if the FTSE futures is suggesting such a big drop then would it be naive to assume all stock in the FTSE is likely to drop,

I have just set up an IG demo account to see how this works - I assume the demo account works very much like a real account?

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vik2001 5th Feb 13 of 21
2

In reply to post #310278

yes the demo account works with fake money. practice on that for a couple of months till you feel confident. you can learn how markets open and close, and how the spread affects price on opens and closes. its very easy to loose money on a spreadbet account. ive had my heart skip a few beats.

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weycome45 6th Feb 14 of 21

You called it right 100 % and we await what tuesday has in store for us after the Dows amazing 1200 point drop .

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Zoiberg 6th Feb 15 of 21

Once the dust has settled it would be great if Graham Neary and colleagues started a discussion on possible recovery portfolios. However, I know from experience that at the time, no one knows when the dust has settled!

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dfs12 6th Feb 16 of 21

I've taken another quick look following the drop yesterday (now with a cold instead of a hangover - I always seem to get a cold after a hangover). This is total finger in the air stuff as it was on Sunday and of course mean reversion kicks in this time - I got it right last time so I am almost guaranteed to get it totally wrong this time. But I'd bet 50p (maybe a £1) that there are further falls in the US today. Then after today it it'll either get very messy or bounce. At the end of the day your guess is as good as mine... Good luck to all.

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dfs12 6th Feb 17 of 21
4

I've heard many commentators say there are no fundamental reasons to justify the drops. Not wishing to add to the panic but the thing that has me worried? The significant US tax cuts at a time when the US deficit is likely to hit 1 trillion dollars. It seems like a kamikaze move. Put that together with Trump's history of corporate bankruptcies and talk of default on government debt in the run of to the US election election and you have a potential screw up that will put 2007/8 in the shade. Hopefully not likely - but slightly worrying.

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weycome45 7th Feb 18 of 21

Well I have managed to top up positions in Robert Walters, XL Media and Sanderson and open a new position in Dot Digital at knockdown pricesl ! I have followed the advice of the worlds richest man and looked for bargains during the panic ! I suspect he is correct but I have seen a £3000 profit since July (thanks to Stocko ) on a £17000 portfolio of small caps reduce to zero (thanks to recent turbulence )over the past month so I remain sceptical but have my fingers crossed for a strong recovery as I am sure many others will !

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letap73 8th Feb 19 of 21
1

The futures market as we speak is suggesting that the FTSE will be down again tomorrow. The markets are quite volatile. I was in a similar position to weycome45 but I sold everything apart from Royal Mail. At present I am too much of a novice to know what I am really doing, however this is really a great learning experience.

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dfs12 8th Feb 20 of 21
2

In reply to post #312168

Interesting you should keep Royal Mail (LON:RMG). On my system yesterday it was the only thing it flagged as a buy. Let's hope we're both right. Looking at its share price in isolation you wouldn't know there had been anything going on in the world in the last week. Seems an unlikely share to provide big gains doesn't it (hardly exciting)?. But Stockopedia currently loves it SR=99, V=89, Q=89 and M=97.

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dfs12 9th Feb 21 of 21
1

A few days ago I thought there was a chance that the turmoil could be short term only. I think a sustained bounce now looks less likely - especially in the US, where I think markets will drop (on average) for a while. I'm still long in the market in general but reducing the amount allocated long. My top buys at the moment DBX S&P500 SH ETF (LON:XSPS) £3GIS DBX FTSE100 SH ETF (LON:XUKS) and Ishares Physical Gold ETC (LON:SGLN)
All personal opinion and the exact opposite is probably just as likely!

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