Weather outlook for the FTSE

[oldcharlie]

Fred this is really not a question that a TA can answer as it is basically about fundamental analysis. P/E is a value derived from historic company accounts. TA studies price over time and some other matters derived from them such as momentum and other statistical series.

http://www.telegraph.co.uk/finance/pers ... raphs.html

This article has charts of historic P/E and the CAPE P/E. It says that the current P/E of the FTSE100 as a bit above the average of 16 and the CAPE P/E (a moving average of the last 10 years to iron out cyclical factors) is well below average.

I did read a very interesting article about this on the IG board but it is not available now. I think it said that the high number of commodity and oil stocks in the 100 has depressed earnings and made the Market expensive but that this is changing and next year earnings in these sectors will improve and this will make the market cheaper.

OC

[oldcharlie]

http://www.telegraph.co.uk/investing/sh ... vervalued/

There is some discussion of this in "Trading my Way to a Million."

However, I think this is closed as off topic!

OC

[DiamondEcho]

Thanks OC, nice chart you created there.

Where do you source authoritative intra-day and closing high levels? I find I have to make notes of such levels on the day they occur, as I've found nowhere that accurately records them. And causing further confusion they can be mis-reported later by the media it seems. In contrast you'll find such records for the US indices on Wikipedia.

Was Friday 30-Dec both a record intra-day and cob at 7142.83?

[oldcharlie]

Weather Warning!

RSI now 4 days overbought and the weekly is showing bearish divergence!

So short term I expect a few down days. Maybe a pull back to support on the breakout level (old highest close or 7000?)

OC

[oldcharlie]

FTSE is approaching the 7300 level which was my target to confirm the breakout. It seems that the fall in the £ is pushing the Market up!

OC

[DiamondEcho]

Yep, seems so.
FXEmpire's daily has [precis version]> Could reach towards 7500. Current floor at 7125. Bit over-extended at the moment. Pullback needed [in order to then retrace, and then go higher]

[oldcharlie]

The Index is overbought with the RSI at 81 and over 70 for 9 days. This the longest run and highest level for a long time, in fact back to May 2013 when the Index dropped 800 points approx with little warning. Then it is back to the 1987 bull market for runs over 70 and levels over 81. 81 has only been exceeded about a dozen times since 1984 when the Index was formed. This run is probably unique in terms of the strength and consistency of the daily candles.

My first target is 7345 the minimum target set by the inverse H & S base formation. Bad weather and disruption to rail services may eventually depress the City!

OC

[DiamondEcho]

10th consecutive record high, and yep, probably due a breather

[DiamondEcho]

FXEmpire:
'Very, veeery, bullish. Continues to be a buy only situation. Pullbacks needed to get involved as it is overbought. However the selling of this market is all but impossible, even though I expect a pullback. I look at 7125 as the absolute floor. The FTSE-100 is just a freight train going higher'.
https://www.fxempire.com/forecasts/arti ... sis-382583

The above text is transcribed from the video, which always elaborates and adds useful emphasis to the summary text that FXE provide. Actually, here, I'll post the summary text as well and you can see how they vary, and why I find an additional minute watching the daily vid useful:-

'The FTSE 100 rallied yet again during the day on Wednesday, as we continue to see an extraordinarily bullish move in this market. At this point, there’s no way to sell this market, and pullbacks must be looked at as potential value. The 7125 level remains a “floor” in the market as far as I can see, but quite frankly I am getting a bit worried about the acceleration of the move. Sooner or later we need a rest. However, that rest should offer quite a bit of value for those of you who are willing to wait.'

[piccadilly]

I agree,reading the above, this level is not sustainable.

[oldcharlie]

Although there has not been a close above 7300, I am inclined to back the raging bull . Buying after a pullback, ensuring no significant break of support, would seem to be the safe option. There are several upside targets on the P & F and no downside targets.
Updata are very enthusiastic for this market.

Since further weakness in £ is practically guaranteed which seems to be correlated with Market strength.

OC

[DiamondEcho]

I agree,reading the above, this level is not sustainable.

Until very recently I was quite comfortable with the lack of buy, buy, buy hysteria this time around. This is the first I have seen of it. Time to sell, very soon, I fear.

IMO caution is wise, even cynicism depending on the source. But note his analysis isn't a mainstream media headline vying for attention. Furthermore he publishes c20 FX, Commodity and stock index analyses a day, so you might conclude his forecasting for the FTSE is within that global context. Perhaps his weeklies or monthlies would provide you with a deeper and more reassuring wider background. Current weekly -> https://www.fxempire.com/forecasts/arti ... sis-381796

IG tend to issue a shorter term view, and their dailies have recently noted less or no upside resistance levels. But on 3-Jan they noted an upside target level, +150 points higher, at 7300. No upside levels on Monday 9-Jan. 'Key resistance' at 7244 on Tuesday, which it stormed through. No upside levels yesterday. Today, upside resistance at 7295 and 7333. And FWIW downside levels support at 7250, and if it continues down through 7200 then 'sellers now in control'.

I'll take unemotional TA over a mainstream financial journalist for my data any day; but it's entirely up to the individual what sources they rely upon. I feel that there are a lot of unknowns priced into the London market, what with BREXIT, Trump etc. Maybe that's why the FTSE has been rather soggy of late in the mornings and then takes clearer direction from the US open.

[DiamondEcho]

Since further weakness in £ is practically guaranteed which seems to be correlated with Market strength. OC

I agree. The FTSE-100 companies derive much revenue in foreign currency. With Sterling under the cosh the div increases start to look attractive. I've a big US$ derived div coming due in a couple of weeks, and last night I was mulling the FX rate vs that applied on the same div last year. The YoY rate difference alone suggests even a flat US$ div would equate to 14% more in Sterling terms.

[DiamondEcho]

I know what you mean FB. But I haven't seen the kind of euphoria you're referring to since 98/99 [when FWIW I was working on Wall Street]. Back then we stood back and cheered, but could not really believe what we were seeing; it was insane, palpably, clearly, and yet happening.
IMO/E the market is far more cautious now, there is nothing like that 'irrational exuberance'. I also believe we're clawing our way slowly out of a lot of priced-in negativity/unknowns.
It doesn't, of course, mean there might not be surprises along the way, but really, to me the whole feel is far and away from crazy/heady times... it's more, 'very cautiously, and progressively optimistic'.


- Gawd they'll write that last bit on my tomb-stone eh?

[DiamondEcho]

IMO the phrase 'it's different this time' has become rather totemic and catch-all, and simple to use in far more mundane circumstances. Rather suggesting broader insight and caution vs the unwise masses.
But I haven't seen the phrase being used recently, in the sense it was in the 90s, like say 'P/E's no longer matter', 'any earnings or yield no longer matter', 'stocks are going to fly regardless of pretty much any fundamentals' [+back-fill reasons - demographics, retiring boomers/pensions, new technologies/markets etc].
You might conclude I'm saying it is different this time, I don't think so, but what I will say it feels nothing like the same - or is that the same thing? What I can say was the dot.com boom and bust felt like being encouraged to throw the rule-book out the window. And for quite a long period, a year or more, it apparently paying off big time, until suddenly one day it imploded. By the time it did there were plenty of analysts suggesting the writing was on the wall. They also gave sound reasons why, but were roundly ignored. Even the guy making your sandwich for lunch at the local cafe was exchanging stock-tips and dreaming of early retirement; we were all going to soon become very rich.

[oldcharlie]

Speaking about irrational exuberance, the RSI monthly is still below 70. In the topping areas of 2000 and 2008, the monthly RSI had 3 and 4 peaks above 70 respectively.

Turning to the weekly RSI, there are successive peaks with the RSI weekly over 70 in all the big bull runs. It is interesting that in each of the main peaks 2000 and 2007/8 the weekly RSI is above 70 about 18 months to 2 years before the actual highest highs. The minor tops within the main topping areas take place below 70 and begin to show bearish divergence. The only weeks above 70 since the base in 2009 were three weeks in Feb/March 2013. So any pull back now could simply mean that this is the beginning of a sideways topping area. If only we had a longer history to analyse. The current trading is bearish divergent.

So in fact technically the index is not showing irrational exuberance. That may be ahead of us or it was back in 2013!

OC

[oldcharlie]

Critical stage reached in the bull market. FTSE fell to an important support level today: the highs of April 2015 and October 2016 at 7120 approx.

There is still the psychologically important round number 7000 if this level fails to hold.

The H & S target has been met but there are still P & F targets higher up and no down targets. The Index needs to fall below 7080 on the P & F box size 60 to reverse into a down column.

Despite the strong down movement the RSI daily is some way from the 30 line.

The slight strengthening in the £ may be linked to the pull back. Updata have lower P & F targets for the dollar exchange rate so everything is on a knife edge.

There are wobbles all round in the US markets but the long and medium term P & F charts are solidly bullish.

OC

[oldcharlie]

Been trying to find a floor all day. Several strong rallies but closing below the open.

OC

[oldcharlie]

The P & F 60 box chart now has a three box reversal into a down column. The Index might find support here on the old highs of May 15 and October 16 but the waves look incomplete and there are other minor support levels before the psychologically important 7000 round number.

The RSI is not oversold.

OC

[oldcharlie]

For those of you who are trading individual stocks, David Linton has run through the entire FTSE100 today with his usual Cloud weekly, Daily and 60 minute overlays.There are only a few stocks bearish on all three time frames. Many of the bullish ones are poised to make new highs with big upside targets (30% plus) on the weekly charts.

A cloudless sky! You may recall what happens to cloudless skies! I worry about the slight bearish divergence on the Index at the last top on the RSI weekly. Probably signifies one or two more rallies with more pronounced bearish divergence to come. That would square with the bullish cloud analysis.

OC