FTSE 100, Daily
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In our last couple of reports we felt that the FTSE was looking solid in the near term trading range, red region. However we can see that both in the FTSE chart above and in the US daily charts below that the international markets have broken down in recent weeks, green region. This nervousness has created significant headwinds for any UK stock buyers.
The US markets have been under-performing in recent weeks and this continues. The retracement levels drawn on this chart, red lines, are calculated from the 2012 lows to the summer highs. These retracement levels are often useful over clear trends as seen over the summer. The FTSE has just moved down into the retracement channel, the 38.2-61.8% lines, signalling a period of consolidation ahead.
The Daily S&P 500 graph below describes how the wider US market has fallen down to its comparable 61.8% level. Illustrating that the relative US under-performance continues.
The FTSE has clearly broken the bullish trend from the 2012 lows, red region, but trend breaks do not have to equal new and opposite trends. More often markets consolidate for a period, often in the retracement levels thrown up from the previous trend. So while the FTSE holds ground above its 61.8% retracement level around 5,500 we do not see the buyers losing interest.
As a result the recent trading selloff would look to be offering a trading buy opportunity. Technical Analysts prefer to trade with the trend and we would appear to have moved into a trading range phase, so buying here would only be wise for the active. The more straight-forward trade remains a long S&P 500 and short FTSE 100 trade looking for this near term divergence to unwind.
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FTSE 100, Weekly
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Last Updated, November 20th, 2012
The situation on the Weekly chart will take some time to change greatly, so the text below may remain broadly same week to week unless major levels are broken. As with the monthly chart below however we will update the graph each week, and post all the text so that new readers will have all the information to hand.
For the Weekly chart we can see how the FTSE 100 has clearly had a hard time breaking up through the 6,000 area over the past couple of years. We can also see how the current price action could well be the price moving down the right shoulder of a 'head and shoulder' pattern. It is much too early to call this pattern formally here, as the neckline would need to be breached, around 4,775, but it is still worth noting as this could result in medium term nervousness. Also in recent weeks the S&P 500 and the Dow have both posted higher medium term highs, suggesting the FTSE is set to do the same, which would of course negate any possible bearish H&S.
Over this period the market has posted a strong bullish trend as the index continues a strong recovery from the 2009 lows, and this trend is attempting to bring the market up to the 6,000 major resistance area. So over the weeks and months ahead we do expect a more heated debate between the bullish & bearish, with breaks above the 6,000 area, or moves under the longer term bullish trend line as offering the first clue on the direction of the next major leg ahead.
As a result the current moves down to the longer term bullish trend look relatively attractive areas for the longer term trader to add to long to positions.
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FTSE 100, Monthly
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Last Updated, November 5th, 2012
The monthly timescale naturally takes the long term view so the commentary in this section will only be updated as when market events dictate. So regular readers of this report will only need to read the monthly and weekly sections on a relatively infrequent basis. However we include all the information to give new readers the full picture.
The Monthly graph for the FTSE 100 quite clearly shows how the index posted an extremely powerful move into the end of the last century, first red line.
From the all time highs in the index at 6950 the FTSE slumped 50% to the 2003 lows. In hindsight we can see this move as an understandable and even justifiable re-examination of the strong gains posted in the previous 20-30 years. The market currently remains well above these lows, which tells us that the Eurozone sovereign debt issues, technically at least, are not as significant as the general press would have us believe.
The FTSE remains in a trendless state, having posted lower highs in 2007, and higher lows in 2008, red lines. Retracement levels calculated from the all time highs to the 2003 lows create some interesting levels. We suspect that these levels will continue to be of use for the quarters ahead, a break back under the 61.8% level would suggest a new trading range between 4367-5215 would be possible. This area also coincides with the possible neckline of a major bearish H&S Pattern. Which would suggest strong support seen on any weakness down to 4775.
In summary then the FTSE 100 remains in a trendless state over the long term, with lower highs and higher lows, trading in the shadow of the TMT sell-off. The FTSE remains more neutral in its outlook than the more optimistic S&P 500 and Dow.
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S&P 500 Graph, Daily
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The S&P had been in a strong bull trend, green region, however it has broken lower in the past couple of weeks and has set up a near term bearish trend, and following the election has even accelerated lower, down to the 61.8% retracement level.
Yesterday's rally lifted the market up towards the 38.2% level and we would expect minor resistance to emerge on any further gains up to 1395. Under-performance and divergence compared to the FTSE 100 of this type is not that commonplace and would appear to offer up a Buy US, Sell FTSE trade for those looking for this near term divergence to unwind.
We would see traders looking to buy on strength on any moves up through the 1395 area, and we will also keep an eye on the 20 Day Moving Average which may provde resistance. However consolidations of this type often take a while to resolve, so we do see a relatively tight upside potential on any first leg of buying, and would see short sellers keen to re-enter on any moves around 1394-1400. Leaving some near term buying momentum expected, but that the upside is seen capped, and likely to attract additional short selling.
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S&P 500 Graph, Weekly
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Over the weekly timescale the graphs show us how the index has moved down to the medium term trend line, lower red line, and just broken through it.
A break of this nature normally would not be too concerning, the issue currently is that the FTSE has been looking much less optimistic in recent months, so the near term weakness in the US markets could be the start of a US re-evaluation of the buying seen from the 2009 lows. If this was the case we would draw up longer term retracement levels calculated from the 2009 lows to the 2012 highs as levels that could indicate where any such medium term breaks could find support.
While the 2011 highs continue to offer support however the current areas can be seen as interesting buying areas for the medium term investor, while the more bearish will be concerned that this may already be the first sign of a more major trend change ahead.
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Dow Graph, Monthly
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Last Updated, November 5th, 2012
Above is just a quick chart on the Dow, highlighting that despite the wider market nervousness the Dow has recently pushed on towards its all time highs. This long term chart highlights how the index posted an extreme move higher through 1990-2000. This move is all the more powerful as this is a semi-log chart.
Unlike the FTSE the Dow posted fresh all time highs in 2007, so the Dow has posted a long-term broadening pattern with higher highs and lower lows, compared to the FTSE 100 which has posted a tightening formation over this period.
So the long term bulls will be hoping that the Dow can push through its major long term highs and post a bull trend comparable to that seen in the 1980-2005 period. While bears will feel the index will fail at this current attempt and more closely match the series of failures posted between 1965-1985.
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S&P 500 Monthly
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Updated September 10th, 2012
On the S&P graph we can see how the broader index has attempted to follow the Dow higher, and has now confirmed the Dow as it has also posted fresh multi year highs in 2012. Using basic Dow Theory this confirmation between these two broad equity indices highlights the apparent positivity in the market.
What is also worth noting is that the US index has posted a stronger longer term bullish trading range from the lows of 2008, compared to the flatter trading range set up on the FTSE over the same period.
So currently the most bullish index is the Dow, then the S&P with the FTSE bringing up the rear. If the FTSE was able to post fresh multi year highs, confirming the more optimistic US indices, then we could see traders looking to buy the FTSE and selling either the S&P or the Dow looking for this longer term divergence to unwind. However the FTSE would need to confirm the bullish outlook first and this position should not be entered pre-emptively as these conditions could remain in place for some time.
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Nikkei, Quarterly
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Enclosed above is a quarterly graph on the Nikkei. For those readers who blindly assume major stock markets are in a perennial bull trend, with only temporary bearish aberrations. This shows that G7 nations can be, and have been, in major bearish trends for over 25 years.
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