FTSE 100: one bad month does not end a four-year bull market
The problem with the indices right now is that they are over-invested and over-exposed. With ultra-low interest rates comes an ultra-low incentive to put money in the bank. As 1% of the world’s population now owns 50% of the wealth where does all this money go?
With indices and top blue-chip companies offering massive dividends and holding huge cash reserves, it’s not hard to see why the wealthy elite would rather put their money in Google than, say, Greek debt. The problem with the old investment model of a ‘balanced portfolio’ is that, without appropriate interest rates, steady bond prices and stability, that traditional model does not work.
Ultra-wealthy people are not looking for massive returns; they are rich enough. When we see stock corrections this is not the retail market. This is institutions and large investors taking profit at the top. When large investors sell the moves are huge, over-exaggerated, a ‘flash-style crash’. This is sheer volume, not necessarily fear or panic-selling.
The press love to attribute news to big moves. Russia, Ebola, QE ending… these are all known and have been for months. Technical selling accounts for 80% of all trading calls.
Money has been made and will be redistributed. This is not to say this money will not find its way back to the indices at lower levels. A correction is a natural part of the investing cycle. It is not necessarily a bad thing.
7000 was a key psychological level in the FTSE; with Dow, the DAX and SPX all making record highs it was a fair assumption that the FTSE would do the same.
One month’s major correction does not end the run in the FTSE.
The next major target for the FTSE on the long-term view to find support is 5836.49. 6000 will be the next obvious technical and psychological level, but if the down move is to continue and break 5836.49 by Christmas we could truly be seeing a major correction.
As we have seen a very fast sell-off I would like to see the FTSE close the current month above 6398.01. This will allow the markets to have taken a lot of profit in a relatively short space of time and will have technically done no real harm to the bull run. If we close this month with that scenario I can still see the FTSE hitting 7000.
The daily charts look nowhere near as bleak as the monthly. When we see quick movements there is always panic. We are starting to see lower wick rejection on the daily closes and also indecision candles. My own unique technical D1 bias is telling me buyers are technically set to buy back these lows, and have been for a number of days.
Short term I would be buying dips once more from now on any day that significantly rejects a close to the low. Data-dependent a close above 6247.82 today may see some light relief-buying opportunities.
Chief Market Strategist
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