Zak Mir on the North Face and SBM Editor’s nemesis – Kazakhmys!

I suppose it can be said quite fairly that the FTSE 100 has been, and remains something of a North Face of the Eiger in terms of being the market that every trader wants to conquer, whether a novice or a seasoned professional. 

A couple of blogs ago I highlighted the way that four years ago I mapped out a triple top for the UK index that would likely complete at the beginning of 2013. So far, this has happened in the sense that we have been treated to a 500 points decline from last month’s peak, something which makes you wonder whether it can now be rightly asked – are we still in a bull market now? 

In other words, how can a market of strength blow away hard earned gains so easily? But, the point about the four-year ahead prediction is that very often it is easier to look at a market from a distance. For instance, making a yearend call, rather than get a judgement on where it is going to move in the next day or two (betting on spider crawling is likely to be more profitable!). 

For example, the past week has seen a typical situation with a counter trend pullback ahead of the non-farm payroll data, a brief rally back to former late April support around 6400, and then a renewed decline today. On the face of it this would appear somewhat mysterious but at least looking at the daily chart of the UK index it can be seen that Tuesday’s trade delivered a narrow bear trap below 6280, and below the intraday support of last week. 

According to charting rules one, would have expected the 6280 level to be retested, even if it marks the low point in the sell-off from 2013 highs. In fact, in the wake of today’s bear trap/late dividend inspired rally, I have drawn out what I think is the likely near-term path for the UK index. 

This path has been derived from the way that there is post February neckline support for this market around the 6280 level and that given how sharp the decline was from May resistance, we would expect a reasonable rebound of about a third of the decline, something which would be similar to the highs seen in March/April on the way up. But, it can be seen from the daily chart here that bulls of leading UK stocks really do not want to see sustained price action below 6280 as it would risk much of the gains seen since November’s 5600 zone floor then being eliminated. 

Finally, Kazakhmys (KAZ) –  a stock that it is fair to say is the nemesis of SBM’s esteemed editor (editor interject – and indeed you Zak as it was your June Buy Call!)! It seems that he only has to open his mouth and highlight the value and another lurch lower arrives! But, I for one believe in the fundamental analysis of this stock and it is, to me, another example of where perhaps a longer distance perspective may have been useful in ensuring that a bullish call here was postponed for as long as possible (granted that is with the benefit of hindsight now!).

March’s high-profile 50 day/200 day moving average dead cross, and the way that even on rallies the shares have been unable to get anywhere near the grey 20 day moving average currently at £3.34 is not encouraging. The problem now in the wake of today’s end of day close at 300p is that we appear to have broken below the floor of a converging triangle, an event which risks a targets towards £2.10 and likely even less hair for our editor! While it is early days on the doomsday scenario here, in the wake of the red April support line break and the April support line break in the RSI window a couple weeks back, it is very difficult to suggest that the price pattern since the beginning of this month is not a mid-move consolidation ahead of a fresh leg to the downside. No doubt, all will be revealed soon.