Why the FTSE won’t come back (yet…)

It’s interesting sitting where we are and receiving lots of daily commentary on the markets. The common theme that stands out very clearly to us at present is that a lot of the “tipster” services are expecting (almost willing) the FTSE to come back after a strong start to the year. Most commentators are also advising caution (we ourselves have been taking capital off the table with our recent large outperformers – ENRC, BUMI, JAPAN, LMI etc..).

Well, if there’s one thing you can guarantee in the markets, it’s that they will ALWAYS catch as many people as possible on the hop – this is precisely why spread bet firms make money and why markets move decisively – people scramble to cover loss making positions.

Take a look at the chart below which depicts the current short interest situation in the US plotted relative to the S&P 500. You can see that only when short interest falls to around 6bn shares or below has the S&P fallen in recent years. With heightened expectations of a retracement, particularly as we career towards a renewed spat in the US over the debt ceiling issues, I would proffer that this in “in the price”. 

Our money’s on another 2-3% upside before it’s time to build a short – and probably best through the use of options which are priced cheaply at the moment as the VIX is so low. Check out the guide below to learn more about using options in your trading.

Should the market follow the same historic path of the bull run from 2003 per the chart below, then we could be looking at another 10%+ from here…