Market Report - FTSE 100 and DJIA shaky but overall uptrend remains intact
Markets have fallen sharply since my last report on a combination of Euro-zone worries, UK election uncertainty and US "fat-fingers". It seems like it's coming at us from all over the place. When I wrote my last report, the Dow Jones Industrial Average (DJIA) stood at 10997 and is currently 10620. A 3.4% fall under the circumstances isn't too bad really. The FTSE 100 is down from 5770 to 5262, a much bigger fall of 8.8% which is understandable given our election which the US markets won't care too much about. As always, there's only one thing to do when markets have sharp falls - assess the damage to the bigger picture on the Point & Figure charts.
Well, the overall picture on the Dow still looks OK, i.e. the major uptrend since March 2009 has not been broken. Fortunately, P&F only plots using the closing price (or at least it should do) and this means that the near 1,000 point intra-day fall on the Dow on 6 May doesn't really impact the chart too badly because 650pts of that fall was recovered during the rest of day. On a bar/candlestick chart it looks awful, but on the P&F chart the damage is contained.
FTSE doesn't look as comfortable, but still the overall uptrend remains intact, and it would take a close below 5050 to change the picture. What's very interesting is the situation on some of the other UK indices. The trends on the All-Share and the FT30 both look fine at the moment, fine in the sense that they are dented but not broken. The FTSE250 chart is even better - currently at 10022 - it would need to close below 9500 to cause significant damage. So there's still a fair amount of breathing space on all the index charts, and for that reason it's premature to call the uptrend over.
This concept of taking a step back from the immediate price action and putting it into context against the bigger picture - usually taking in up to 18 months of data - is vital in situations like this for keeping perspective. Bull markets will always be punctuated by price shocks, which by definition are very difficult to predict, and it is easy to be swept away with the general panic when they occur. Watching the CNBC coverage of the Dow's 1,000 point intra-day drop, there was some very emotional language being used, and you could have been forgiven for thinking it was the end of the financial world as indeed one or two commentators suggested. I heard the word "capitulation" being used several times. It may have felt like that momentarily, but I don't think anyone would say that capitulation on a wide scale has taken place if they looked at the P&F chart now.
Last time I said that the Gold chart looked very interesting, and that "it looks like the second stage of this bull market is under way". Gold then stood at $1161, and it has advanced to $1232. Gold is currently making new all-time highs, and as I've said before, one of the best rules of thumb is that one all-time high leads to another and another. It's a little overbought in the short-term, but I still expect it to ultimately reach my target of $1300 which I published in my November report.
Sterling has broken down against the Dollar after consolidating for a couple of months, effectively resuming the downtrend that was already in place. It currently stands at 1.45 and there's not much support until 1.38. Likewise, the Euro continues to trend lower against the Dollar, currently at 1.23, and this chart has no real support at all
Oil has confounded my expectations with a sharp drop to $73.6 from $84.9 since the last report. Interestingly though, the sequence of rising lows hasn't been broken yet, so technically this is still in an uptrend.
The election result wasn't ideal for many - including my forecast for a better Tory result than the polls were showing. In fact, was it ideal for anyone? However, once the UK markets get used to the idea of a coalition, they should at least see that as a better alternative to another five years of Labour, and hopefully out-perform compared with the thirteen years under the previous administration.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
15 comments
Also if the FTSE goes to 10,000 by 2012 does that mean the Dow will be at 20,000 by 2012 ?
Yes, the Dow should be roughly double FTSE.
Robert, Would it be possible for you to explain the technicals that dictate your 10,000 target for 2012 please?
I really want to you understand what you are seeing because if 10,000 FTSE is coming then fantastic, all I have to do is buy and hold for 2.5 years...... ;-D
I have done so in detail a number of times already in earlier reports & replies to questions.
It is based on the extent of previous bull markets which were signalled by Coppock.
As an aside Robert, I don't understand why you say you think the Ftse100 will be at 10,000 solely because some chart says so. To my mind one has to ask what is underpinning such an assumption other than investor psychology leading to there being way more buyers than sellers.
Never really understood the emphasis on Technical Analysis to be honest. Far more inclined to do a bit of research into the nitty gritty of what is driving specific market sectors, company A or B in particular or how some of my long term favourites might be affected by the shifting economic balance as power clearly gravitates East.
Hence my genuine question.
Yes, I know it's a genuine question, but I don't have the (fundamental) answer.
However, experience and previous forecasts suggest that it isn't necessary.
True Stock, but that massive monetary stimulus is going to be offset by even larger fiscal contraction that is going to be experienced both in the Uk and Europe - Spain,Portugal, Italy, Greece. I struggle to see how all these,imv, overly optimistic growth forecasts, are going to be satisified. And with Inflation rearing I doubt interest rates will remain too low for too low - despite King saying they were effectively on hold for the next 12months at least.
Low interest rates, contractionary public spending, high inflation, an attack on saving(higher CGT/reduced relief thresholds).
All in all a pretty unfavourable investing climate.
Perhaps the ftse100 target of 10,000 will be driven solely by search for yield in an effort to keep ahead of Inflation as the masses stampede into the market for anything that yields 5% plus.
Robert
If the FTSE is going to 10,000 by 2012 can you please tell us when you think the Ftse will go to 7500 ? Thanks.
Given that the Ftse is currently at 5300, and Europe seems to be entering phase two of the credit crisis that will involve massive deleveraging/harsh Sovereign budget cuts the like of which are going to make the banking crisis seem like a walk in the park, what do you think will drive the Ftse to 10000 by 2012?
I appreciate that the Ftse 100 is more international than other UK benchmarks, mostly Oils and Miners, but surely the contractionary GDP phase we are about to see in Europe(for starters) will put downward pressure on both commodity prices and Oil? Thus the likes of Rio Tinto/BHP, and BP/Shell are likely to fall in line with their underlying respective commodity prices. The fiscal crisis in Southern Europe, and the resultant growth & credit worthiness worries have already seen Copper fall below $7000, Oil below $80. And this debt problem has further to go now that the EU is effectively out of ammunition - the 750bn guarantee package is simply not going to shore up the worries.After all, given the financial constraints Germany, France, UK are in just where the hell is that money going to be coming from should it be required?
To me it seems the markets are going one way in the interim,and that's down.So to reach 10,000 from an even lower point than we are currently at implies some extraordinary rebound.
Just what is underpinning your belief that the Ftse will have cantered up to 10,000 in 2.5 years time? Am genuinely interested as it seems at odds with where I think it will be(and am positioning accordingly)
Of course we could perhaps be in a deflationary boom. Low rates, low but steady growth, historically moderate-to-low valuations, companies beating estimates (trend to continue?), massive monetary stimulus all round, continued technological innovation - plenty of reasons to balance the doom mongers. It could be that the negatives are all just bricks in the wall of worry that won't be that hard for stocks to step over. There's already been plenty time to price the negative factors in - but perhaps not so much time for the positives. By that note could it be that stocks are as likely to melt-up as melt-down in the next 2 years?
Fangorn, As this is a technical analysis column it doesn't seek out fundamentals to support the conclusion based on the chart. If you look at some of the calls I've made over the last few years which are listed just below the report, they were all done this way. Indeed, if I had factored in other things, I'd have been put off. The 10,000 target by the end of 2012 is purely chart based. Quite often, events that you weren't expecting will transpire, and these will take the market in the direction that the chart has already anticipated. This is very common. But you can't predict what those events will be. This can be a tough concept for those who don't rely on charts because it effectively inverts the cause/effect sequence that all non-technicians are looking for.
OK - Without putting on targets can you tell me what course the FTSE will take to get to 10,000 by 2012?
I think that is quite a big call to make because your suggesting we are going to have a mega rally in the next 1.5 years!
How will the FTSE get to 10,000? Will it be in a straight line or are you expecting set backs a long the way? I.e. the index going up and then falling back 10% followed by 20-30% rise...
e.g. 2/3 steps forward and one step back etc
Also for the FTSE to get to 10,000 which sector do you think will lead the charge? Miners/Oilies? Banks? Pharmas?
Would be interested to hear your views.
Thanks!
The end of 2012 is 2.5 yrs away.
Perhaps your views would be better illustrated with a chart explaining your commentary?
In terms of the markets all I have taken away is the main indicies uptrend remains intact....But I have'nt learnt anything about where you think it is likely to be in 1 month, 3 month or 6 months?
This type of information would be useful, then we can review your calls when the time comes.
Isaac, you seem to think targets can be set on demand. I'm afraid it doesn't work that way - it's an invitation to crystal-ball gaze rather than produce analysis. As and when a chart completes a pattern that provides a target, I'll say so.