If you follow me on Tweets or have looked at the ‘Changes List’ on my Homepage, you might have seen that I bought a Long Spreadbet on FTSE100 at 6389 late on the Evening of Thursday 26th November 2015 (equivalent to about 20% of my existing Long Exposure via Stocks in my Trading ISA and Spreadbets) and I wanted to do a quick Blog to show my reasoning and to also do a quick glimpse at how the FTSE100 and S&P500 look for the coming Weeks and for December.
As ever with how I do stuff, there are a mix of Fundamental Reasons and Technical Reasons which have pushed me into the Decision to Buy the FTSE100. The Fundamental Reasons are as follows:
- We are in the Historically most Bullish Period of the Year - Winter is usually stronger than the Summer and December is the strongest month of all. To illustrate, according to the marvellous UK Stockmarket Almanac, since 1984 (when the FTSE100 was created) the FTSE100 has risen in December in 87% of years - over the 28 Year Period it has only fallen 4 times. The Average Return is a gain of 2.5%.
- Quite often we get a ‘Santa Rally’ which I think happens pretty much around Xmas and in the period to New Year and just beyond - this can be a really excellent period of gains.
- Anecdotally it strikes me that people are in general still very nervous and the Financial Media are pumping out all the usual scare stories of US Rate Rises, China Slowdown, Indebted UK consumers, Housing Market Bubble in the UK, European Depression, Middle East conflagration, Climate Change drowning us all (or cooking us all depending on what you read), etc. etc. etc. Markets always climb a ‘Wall of Worry’ and this seems like a pretty normal backdrop to me - there is certainly no positive bullish euphoria in the Markets - that is when Markets fall, not when everyone is scared witless. From comments I see on Twitter etc. it seems that many people still are sitting on Cash and that shows a lack of bullishness - if Markets can keep climbing, these people will start to deploy their Cash for fear of missing out.
- Overall I stand by what I have said for years - I don’t see any kind of Stockmarket Collapse or Bear Market coming until we are facing a Global Recession - despite all the talk, we are nowhere near a Global Recession from what I can tell and in such an environment Equities can probably keep plodding upwards or at worst sideways. It is still a fact that Equities are the only game in town if an Investor is seeking Yield - I can’t see this changing for a long time.
- With December being historically such a Strong Month it just struck me that taking on a bit more Longside Exposure might give me a little bit more Return on the Year if things work out my way. I have not set a Stoploss as such but will be monitoring things closely - I would only get really worried if we went below the August 24th Low of 5768 but I see this as extremely unlikely. I would expect the FTSE100 could get up to about 6600 if we have a couple of decent Weeks and possibly a little more if Santa comes swinging by.
- This is part Technical - I looked back over about 4 Years to see how Decembers had played out recently. I was expecting a clear pattern but to be honest there wasn’t one. In a couple we seemed to have big falls and in others we had big rises in the first couple of weeks - I am viewing December in its entirety and the Historical precedents seem to suggest a good month is most likely. The Technical Factors I show below (mainly the Breakout) suggest we can rise from here.
Probably the biggest development which forced my Buy Decision on the FTSE100 was the Breakout of a Downtrend Line from mid October as I will show below.
As usual, all the Charts coming up next relate to the situation as it confronted me on Thursday Night just before my Decision to buy - so this is the information I was acting upon.
The Chart below shows the FTSE100 Daily Candlesticks Chart for a big part of this year. The Blue Parallel Lines show an Uptrend which seems to be forming since the ‘Black China Monday’ August 24th lows. The Red Line (marked with the Red Arrow) shows a Downtrend Line that comes from back in June which was broken out of several times over the last 6 weeks or so but it couldn’t really make much upward progress and it meant that another Downtrend Line formed (the sort of Mauve one marked with the sort of Mauve Arrow), which was finally broken out of on Thursday (as marked with the Green Arrow).
This Breakout was what really made my Buy Decision. Not only did it break the Mauve line, it also got above 6350 ish which had been Horizontal Resistance a few days ago. Note also how the 2 White Up Candles followed a lovely Hammer and this was a Reversal Point for the Price to change direction.
In the bottom Window, my Blue Arrow is marking where there was a Bullish MACD Cross (Moving Average Convergence Divergence) - I love this Indicator - it is really very reliable and obviously hints at more gains to come.
Right, now we move onto the situation after I updated ShareScope with Friday’s data. The Chart below has a Black Arrow which points to the Candle created on Friday. This is a Hammer and in this context it might mean a pullback but I doubt it will be much. If we had had a big run up over several Days and then we had a Hammer like this, that might mean a proper fall back - but in the context of just a couple of Up candles for the 2 days before, I doubt it will pullback much.
There is good Support at 6350, 6275, 6220, etc.
According to the UK Stockmarket Almanac, the coming Week (W/E 4th December 2015) is Positive for only 43% of Years historically and the Average Return is ZERO percent. In fact it is historically one of the 10 Worst Weeks of the Year.
Looks dull then !!
The US Markets have very strong power over the UK markets so let’s check this baby out.
My Chart below shows the Daily Candlesticks for the last 6 months or so. I think there could be a ‘Flag Pattern’ forming here - my Blue Arrows point to 2 Candles which might be the Flagpoles and my Black Circle encompasses 5 days or so where the S&P500 has pretty much gone sideways. This could be the Flag.
It is quite normal for Prices to move Up and then to consolidate Sideways for a while and then to move Up again - hopefully this is what we will see here !!
Obviously there is Resistance just above which could prove problematic for a while - however, a Breakout above All Time Highs in a traditionally Bullish Month could really surprise people !!
In the bottom window, the MACD is on the verge of a Bullish MACD Cross - however, there is clearly a risk that it ‘glances off’ and instead the MACD goes Negative again (i.e. more Red Histograms underneath.) I would think the Bullish outcome is more likely.
Interesting stuff ‘eh?
Right, that’s snuff, hope you all have a great week, WD