In this month's newsletter we're going to be looking at both the UK and US stockmarkets to see if there are any clues as to the performance and direction over the next few months. We'll also be looking at what appears to be one of the most exciting markets at present, Gold.
The FTSE 100 - Where Is It & Where It's Likely To Be Heading
A very firm rule of thumb in investing is not to try and pick a top (or a bottom) in any market that is making multi year highs (or lows). In this kind of situation do nothing or buy the market. So with the FTSE 100 now making 4 year highs it makes no sense whatsoever to try and call a top, instead the safest and most probable prediction is to expect higher prices, certainly into the new year.
3 Year FTSE 100 Chart
Market Historians Take Note
Whether you believe in the past history of the market being a precursor to the future direction or not, there can be little argument that the last month of the 4th quarter and the first month of the 1st quarter is historically a strong season for stock prices. And with the market making these 4 yearly highs this phenomenon is more likely to show over the next few months.
The Grinding Nature Of The Stockmarket
If you're mainly invested in the main index (FTSE 100 or FT All Share) then profits will have been built up overtime. The markets are and have been for the last few years in a grinding mode showing little signs of excitement, and we think this is likely to continue. These kinds of grinding moves however are normally good news (for the bulls) because they prove that the market has underlying power as well as giving investors plenty of time to get into the market, or if they miss a move get back in on subsequent retracements.
FTSE 250 Has Been The Market To Be In
The FTSE 250 has far outperformed the FTSE 100 with prices doubling or more over the last few years (4,000 to 8,000+). And again, with these powerful monthly and weekly trends in place there is little evidence to suggest that prices will suddenly reverse. Of course, value investors may well disagree with this as is their right but our analysis is only on the back of the charts and how they look and feel. The value investors argument is likely to be that FTSE 100 stocks are undervalued compared to the 250 and therefore are likely to show more potential if the overall market is going to continue to rally.
3 Year FTSE 250 Chart
Bear in mind though that by its very nature the FTSE 250 index and its constituents are far more volatile than the stocks in the FTSE 100 and this should be noted when deciding where to allocate money.
UK Stockmarket Summary
- Expect higher prices, if not from fundamental reasons then just because the market has been trending higher and trends tend to continue
- Don't expect explosive price action, grinding higher seems to the flavour of the 2-3 year bull move
- Wall Street is still very much the key, see next page
- Selling into strength still looks like a sensible strategy to taking profits, look to get back in on weakness
- Via the charts we cannot see any logical target level that the market will reach should prices continue higher
An old saying in the markets (and a very profitable one if you can actually follow it) states 'trade what you see and not what you think' and for this reason we're still very much invested in our personal SIPPs. So as much as we're overly bearish of the general economic outlook we're trying very hard to follow the advice of trading what we see and not thinking.
But we will still continue to sell into strength and the key for us to get out of the market will be some blowoff top where the market rallies say 10% or more within a month or two.
