FTSE 100: Laughing At The Doomsters?

By Zak Mir

The story of the FTSE 100 so far this century has been one of mixed fortunes. While the concept of selling into strength may not have garnered the doomsters great reward, merely having the luxury of being able to go short of the index on any spikes through 6,800 for 15 years and not getting burned is an extraordinary phenomenon.

This is all the more so given the way that on the occasions when it appeared that the blue chip index was primed to go “over the top”, events like the Scottish referendum, the crude oil collapse, or of course the financial crisis of 2007, conspired to ensure that we have not seen the magic 7,000 figure being hit.

This is quite an achievement given the way that the UK is supposed to be one of the leading lights in G7, and given that so many other markets, especially in the U.S., have soared away massively over where they were in 1999. The traditional explanation is that the FTSE 100’s coterie of resources stocks has been the main culprit, along of course with the idea which is carted out on an all too regular basis that a crash is imminent.

I have two answers to this.

The first is that the “professionals” / “smart” money, do appear to have an addiction to taking a bear stance, with the likes of Crispin Odey, Hugh Hendry and Albert Edwards simply not able to resist calling the end of the world. This makes for instant blanket press coverage and reminds us people with a private investor mentality (such as myself) that we should be scared of the “big, bad, wolf.” This wolf currently offers us a crash off the back of the crude oil fall (the markets always crash with oil – apparently), and of course the latest bête noire, deflation.

But looking at the daily chart of the FTSE 100 I see no crash.

In fact, to be fair, one of the definitions of a crash is that it is an event that most of us, 99.9%, will not see coming. Hence, there is a panic and a market will halve or more in a short space of time. Coming back to the FTSE 100’s position, it might be best to look at it as if it was not this market which has disappointed for 15 years, but a random chart which has been put before us.

On this basis I would describe a market which has just broken out of a mid move consolidation, some 500 points off the last low at 6,300. With the latest support just under 6,750 one would be looking to 500 points added to this number as being the target over the next 1-2 months at the latest. The target figure over this timeframe is therefore 7,250, with the stop loss relatively attractive in terms of being a weekly close back below the 200 day moving average at 6,679.

Unfortunately, given the chronic inability of this market to achieve a breakthrough it may be that some traders prefer to wait for a breakout, and then see a test for new support at 6,900 plus before assuming a new bullish regime for leading UK stocks. I would not blame them as I have grown into advanced middle age waiting for 7,000 plus here.