It can be safely said that, as far as UK equity indices are concerned, there is effectively only one that most investors are interested in following on a regular basis. However, while the FTSE 100 is king, there is merit in looking at various parts of the broader market in order to try and get a proper perspective.
This is particularly the case given the way that the market would appear to be equally divided between two camps – those who think that the FTSE 100, around 100 points off its record highs from the dotcom bubble era is worth shorting, and those who are anticipating a record 7,000 plus handle by the end of 2014.
This is a conundrum which appears difficult to answer. The irony is that what used to be one of the better ways of taking the temperature of leading UK companies, looking at the FTSE 250, does not appear to be the “objective” indicator” it once was. This may be due to a multitude of factors, including the even more heavy weighting of the FTSE 100 with resources stocks, a more international focus even for traditionally domestic focused mid caps, and the vagaries of the post financial crisis / QE.
The FTSE 100 has made a decent job of consolidation after the one touch rebound off the 200 day moving average last week at 6,698. This is even after the profits warning from GlaxoSmithkline (GSK). That said, while there may be more upside, it may be worth waiting on an end of day close above the 50 day moving average at 6,800 before assuming further gains. This is even though the RSI at 53 is now suggesting that bullish momentum is taking hold here for a return to the best levels of the year towards 6,900.
Looking at the FTSE 250 index it can be seen on the daily chart that this is actually a market which has come off the back of a massive rally over the past two years. Indeed, it is interesting to note that the run up to the last big rally from the summer of 2012 until March this year was a rough consolidation at and just below the 200 day moving average, a feature which currently runs at 15,809. The fact that it is still rising gives the bulls hope that we could see this market dragged higher in the wake of what has been a quite lengthy consolidation.
The preferred buy trigger here, perhaps even over and above buying this market on dips towards the 15,500 support zone, is to wait on an end of day close back above the 200 day line to act as a momentum trigger. Such a signal should lead towards a return to the March 16,700 plus highs over the next 1-2 months. This is especially the case given the way that we have seen the RSI – now at 51.9 – flip back over neutral 50.
Apart from the financial media bemoaning the IPO overload that has allegedly been ongoing throughout the year, there was also the idea at the beginning of the year that tech stocks, especially in the U.S., were overcooked. Somehow the implication was that we were in line for dotcom bubble crash II. So far though, this has not happened.
Looking at the daily chart of the TechMARK 100 and it can be seen that we are trading in the aftermath of an unfilled May gap to the upside in May through the 50 day moving average, which is now at 3,233. The suggestion now is that with the RSI still at a relatively modest 59 there should be enough technical gas in the tank to allow for a target towards the October price channel top through 3,400. The timeframe on such a move is seen as being as soon as the next 2-3 weeks. In fact, given the unfilled gap’s presence one would currently regard last year’s price channel top as the “minimum” upside on offer in the near term.
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