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Monday, July 8, 2013, Marketing Communication
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FTSE 100, Daily, Semi-log
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In the note two weeks ago we felt that the market sell-off may have been overdone, so the recent rally has materialised largely as expected. Last week we stated we needed to see price action move up through 6390 in order to turn more optimistic. The graph above details that the 61.8% level has been breached in recent days, so the outlook has improved.
The FTSE moving up through the 61.8% level suggests the market has moved out of the 'natural' consolidation area, 38.2%-61.8%, and could now be preparing for a return move to its May highs. The stochastic has turned higher from oversold conditions, so the indicator is also complimenting the more optimistic tone.
In summary then the bargain hunting buying has done its job, lifting the index off oversold levels and through its bearish trend line and up through the 38.2% level. Leaving the outlook skewed to the optimistic outlook, and we would expect long positions to move stops up from the 50% area at 6240, up towards the 38.2% level at 6390.
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FTSE 100, Weekly, Semi-log
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Last updated, June 2013
The graph above throws up a possible medium term Elliott Wave count on the FTSE 100. We can see how from the 2009 lows there was a fairly clear impulse move higher, Red 1-5, followed by a simple expanded flat abc correction.
From these 2011 lows the FTSE has posted the start of a new bullish impulse wave higher, with the current price action in Wave 4. Elliott Wave rules dictate that if this count is correct on any future weakness the FTSE cannot move into the range of Wave 1. As a result we would expect significant support from the Wave 1 highs, Gold line, which coincides with the psychologically important level at 6,000.
This also suggests that Wave 5 ahead is set to post moves above the highs posted in May 2013. So using this count over the medium to longer term there are bullish arguments for a move up through and beyond the all time highs in the months ahead, and that this strength could start to fail early in 2014. 6,000 can be used as a level to negate this bullish count. Also of interest is how the recent sell-off has brought the index down towards the longer term bullish trend, red diagonal line, and towards major support of the 2011 highs.
So in the medium term the FTSE has dropped down towards some major support areas, and bullish trend lines which may well attract buying interest from the longer term players. Only moves under the 6,000 area would start to create more serious downside concerns.
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FTSE 100, Monthly, Semi-log
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Text last updated, May 12th, 2013
The monthly timescale naturally takes the long term view so the commentary in this section will only be updated as and 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 on the price graph.
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. From 2009 the FTSE has posted a strong recovery and currently is posting moves up to its all time highs, moves already posted by the S&P 500, Dow Jones and DAX. The FTSE broke the upper bearish trend, black line, and continues to look set to follow the S&P 500 by posting a move up to its all time highs around 6950.
Moves under the longer term trend line, far right red diagonal line, could trigger the start of a more significant retracement, as seen with the breaks lower in 2001 and 2008. But while the resistance from the 2011 highs have been cleared, more optimistic long-term targets have been opened up, with moves up to the all time highs now seen as most likely, while the strong longer term trend holds.
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FTSE 350, Monthly, Semi-log
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Enclosed above is a long term chart on the FTSE 350 which has, unlike the FTSE 100, already broken through to fresh all time highs. This move indicates that the FTSE 100 was also set to post fresh all time highs in May, but only failed to do so by the over weighting of the under-performing banking and mining stocks in the index.
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S&P 500 Graph, Daily, Semi-log
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We noted last week how the S&P 500 moves lower have not been to the same scale as the FTSE 100. While the FTSE has traded down to its 61.8% retracement level, the S&P has found support from its comparable 38.2% level, as the economic outlook in the US continues to out-perform the global markets.
Despite this longer term trend we felt last week that traders would be interested in a Buy FTSE / Sell S&P 500 pair trade due to the nearer term divergence. Over the Bank of England and ECB rate announcements on Thursday the sharp moves higher on the FTSE 100 brought the index back in line, as the US markets were closed for July 4th Independence Day holiday and failed to match the percentage gains when the US market returned on Friday.
The longer term out-performance of the US economy is set to renew its out-performance in the coming months as a result the long UK / short US trade should not be employed for the medium term.
The S&P 500 graph above details how the index found support around the 38.2% retracement area and has rallied up to the near term tentative bearish trend line, black line.
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S&P 500, Monthly, Semi-log
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The monthly graph is included to show how the broad US index has posted moves to record all time highs in 2013, within a broad expanding phase, black lines.
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Nikkei 225, Daily, Semi-log
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On the Nikkei we had a positive bias but refrained from turning outright bullish unless the 13570 level was cleared, black line. The graph shows how this line has now been breached. Of interest is how the day of this break the market gapped higher, breakaway gaps of this nature are often useful when they occur over major levels of this type.
This strength has continued in recent days, the risk/reward on further buying here is more questionable and this lack of buying interest could cause the current short term trend to stall, with the 13570 level expected to act as decent support on any near term weakness that was to materialise. Leaving a positive outlook, albeit with more of a hold, buy on weakness stance, than an outright buy.
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Nikkei 225, Monthly, Semi-log
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Enclosed above is a quarterly graph on the Nikkei. We include this for those readers who may assume that all major stock markets are in a perennial bull trend, with only temporary bearish aberrations. This shows that G7 nations can be, and indeed some have been, in major bearish trends for over 25 years.
This graph also details the spectacular percentage gains posted by the index over the past 12 months, moving from 8,000 to 15,000, pulling the index up through the upper end of the long term bearish trading channel, and also opening up its 2007 highs, horizontal red line.
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