Chris Dillow in Investors Chronicle this week, on page 15, wrote a piece called ‘The uncertainty paradox’ which talked about the VIX Volatility Index (The ’Fear Gauge’) and Political Uncertainty. Anyway, as with most of Chris’ stuff I found it a very good read but the thing I picked up from it which I had not considered before, was what a Low VIX or High VIX really means.
OK, we all know it usually means that if the VIX is low then it is likely to rise at some point and this means Stockmarkets may drop etc. but that is not really what I am getting at. The thing I picked up on is how when the VIX is low it implies that the Views of Individual Investors and Traders are actually quite different - there are Sellers of Stock who are pessimistic and there are Buyers who are more optimistic - this is in fact a sign of a healthy market.
The problems start when People all start thinking the same way - in other words we get big drops in the Stockmarkets when the vast Majority of Participants think that Bad News is likely and they all want to Sell Stocks and move into higher Cash positions. Chris talks about that here:
“Low volatility therefore can be a sign that investors disagree. One reason why they’ll do so is precisely that there is uncertainty; it’s such uncertainty that causes differences of opinion.
Uncertainty comes in different forms. One is when everybody agrees that the outlook is risky. In this case volatility will be high as everybody tries to sell. This is what happened in 2008. The other type of uncertainty is when investors don’t know what the outlook is and so disagree. In this case, we’ll have low volatility.”
Anyway, I’ll leave that with you and start on the Charts……..
As seems to be the tradition most weeks, I am starting off with this infamous Long Term FTSE100 Chart which shows the situation since the 2009 Lows and I point your attention to the Uptrend Channel marked by the Parallel Red Lines and how we are back inside this Channel where my Yellow Circle is and this is a very positive thing after we dropped out of the Channel for much of 2015/2016.
Note Support from my Parallel Green Line lower down - this implies to me that Support around maybe 6200 to 6500 is pretty strong so that if we did have some sort of disaster very soon, then there is decent Support below which we could recover from.
On the next Chart I have the FTSE100 Daily Candles going back over about 15 months ish. What I want to show here is how we have another Uptrend Channel covering most of this period which I have marked with my Parallel Blue Lines - you should be able to see we are nicely in this Channel and up near the top.
On Tweets and stuff and on my almost Nightly ‘Technical Views’ (which I tend to put at the top of the ‘M3 Manifesto’ page most evenings), I have often mentioned how I think there is a lot of Support not far below from where we are now - and this is a very good thing as it suggests to me that if we do get a Sell-off, then Buyers have lots of Levels where they are likely to come in and grab cheaper Stocks.
This kind of Support is most noticeable at both the Red Line marked with my Red Arrow which is the Bottom Line of the Red Lines Uptrend Channel on the previous Long Term Chart I showed, and the other nearby bit of Support comes in around 7130 where my Horizontal Black Line (marked with the Black Arrow) is - this was a previous All Time High Level which got broken out of (and we all know that “Previous Resistance becomes Support and Vice Versa……”.) If these kind of Levels fail, then the Bottom Line of my Blue Lines Uptrend Channel kicks in as Support around the 7000 Level which is obviously a Psychologically important level as well.
If all this Support fails, then we have yet more Support down around 6700/6800 - so as you can see, any Drops are likely to be pretty limited. Of course this does not mean we can’t have a Major Market Collapse (in reality they can happen at any time) but I think such an event is highly unlikely.
As ever, if you want to see a Close Up of the Charts, then I think you can click your Shrew on them or prod them with your Finger or some other part of your anatomy, and they should go bigger (stop sniggering !!).
The Screen below zooms in on the Daily Candlesticks for the FTSE100 to about the last 6 Months. There isn’t in all honesty a lot to see here - it is really a battle between Support and Resistance. My Green Arrow is pointing to a White Up Candle which was bashed out on Friday (while I was in the PUB !!) and for the last 5 Days the Price hasn’t really gone anywhere much - it is Sideways really.
In the Red Text Boxes (7253, 7313) I have highlighted the immediate Support and Resistance where we need to look for Breakouts (Up or Down) in the next few Days and my Blue Text Boxes (7354, 7130, 7000) show the Resistance at the Top and Support below which we need to focus on over a longer Period of Time. Indeed, if 7354 is Broken Out of above then that is hugely Bullish and if 7100 Fails as Support then that would be pretty Bearish - although as I mentioned earlier, there is a lot of Support below.
Note to the upside that if we can get over 7354 (the All Time High) then there are no natural Levels where Sellers will come in - this is why ‘Blue Sky’ Breakouts from ATHs are so bullish and important.
In the bottom window on the ScreenShot below (as ever, all piccies are from the wunderbar ShareScope software that I use as my Workbench), we have the extremely Short Term ‘Oversold/Overbought Oscillator’ for the FTSE100 Daily. My Red Arrow is pointing to where it peaked recently and it has now fallen back to where my Blue Arrow is but it could obviously go a lot lower (implying weakness in the FTSE100 Daily Price Line). Really what this is saying is that we are not at extremes either to the Upside or Downside - so chances are we are unlikely to go up much from here, but equally I don’t expect much of a drop.
As with all this Technical Analysis stuff it is probabilistic so of course anything can happen, but the ‘path of least resistance’ is probably more Sideways movement in coming Days.
The Screen below has the Daily Candles for the FTSE100 going back a few months with the Blue Wiggly Bollinger Bands above and below the Price Line. My Green Circle is pointing out how in the last few Days the Price has dropped away from the Upper Bollie Band and this could mean we will see more falls. However, it does not necessarily imply this - it could just be that we go Sideways for a while rather than dropping much.
The Screen below has the Weekly Candles for the FTSE100. My Black Arrow is pointing to a small White Up Candle from last week - this is positive but I would have preferred to have seen a bigger White one - it is not too much to worry about though - overall this is positive.
I love this Chart - look at my Green Circle which is highlighting the ‘Dragonfly Doji’ or ‘Hammer’ or whatever you want to call it - note how it marked a Reversal precisely after a bit of a Pullback before it - love these Candles……..
Below we have the wonderful Heiken Ashi Candles for the FTSE100 (these are Daily - as always I only work down to Daily as my smallest Unit of Time - too much Noise in shorter Time Periods and I am not interested in Day Trading !!), and my Yellow Circle is highlighting now the Candles are still White but they have narrowed and this means we need to be on watch for a change to Red and a move down - these things are brilliant because they are so clear and reliable.
I won’t dwell on this Index as it is not one I take much notice of. However, there could be a Breakout to the Upside here at some point soon so Traders might want to watch this for an Opportunity to go Long on the Breakout and make some Dosh. Also note the DAX is quite similar in many ways, but I won’t show it this week.
The Chart has the Daily Candles for the CAC40 going back about 5 months. My Yellow Circle is highlighting how the CAC40 fell on Friday as shown by the Down Red Body of the Candle but note how there is a long ‘Wick’ or ‘Tail’ downwards to the Candle where the Price fell down to the 50 Day Moving Average (the Wavy Dark Blue Line marked with my Blue Arrow) at 4843 and then reversed back up Intraday.
Note the 50 Day Moving Average (and most of the other commonly used MAs) can act as both Support and Resistance. There is clearly good Support here at 4843 and further down there is Strong Support at 4733 - if the latter fails, then it would be pretty bleak I would suggest. Of course with the French General Election soon, anything could happen on this Index.
On that subject, you may or may not have noticed that I have placed a Box Chart thing on the Homepage of this Website which has the Key Dates of the European Elections etc. this year - worth checking out and I will leave it up here until later in the year when it is no longer relevant.
To the Upside a Breakout of 4930 would be Bullish but note there is a lot of Resistance up above - Space and time are limited so I won’t show this here (that‘s not actually true Wheelie - Space is infinite. #Fake News). In addition, I won’t show them here, but the Bollinger Bands and Heiken Ashi Candles look pretty bearish for the CAC40 I would say.
Dow Jones Industrials Index (30 Megacap Stocks)
The Chart below has the Daily Candles going back around 5 months. My Black Arrow is pointing to where we got a White Up Candle on Friday but it does suggest to me like we might be turning down off the ’Dragonfly’ or Hammer or whatever you want to call it from the Day before - we need more Candles to get a clearer picture of what is happening and to the Upside we need to see a Breakout over the Latest All Time High at 20640.
Note, I won’t show it here, but if you were to draw Parallel Uptrend Channel Lines going back to the 2009 Lows (like I did on the FTSE100 Chart earlier) then you would get a Top Line which is similar to my Green Line at the top of this Chart - this could be showing us that we are pretty Toppy at the moment - however, it needs to be appreciated that an ’Overbought’ Market does not necessarily have to drop to unwind the ’heat’ - it could just go Sideways for a time and that might well happen.
Note how in a similar way to the FTSE100, there is a lot of Support down below and this should be a major help if we do get some sort of Sell-off.
My biggest Fundamental Fear for Markets comes from Trump’s Budget which he will probably announce over the next few weeks. At the moment Markets are rallying on the expectation of some highly pro-growth Policies (see my recent ‘Trumponomics………’ Blogs) but if the Budget fails to match these heightened Expectations, then I think a Sell-off would be very likely.
Having said that, I would err on the side that Trump and the Republicans (Paul Ryan, Speaker of the House, is very involved in the nitty gritty of Trump’s Policies in all departments) actually delivering as expected - and this could mean further gains over 2017 I suspect.
It is also worth appreciating how Growth everywhere seems to be picking up - UK growth has surprised everyone and even the usually moribund European Countries are showing some spirit - this will be unexpected for many but I think it is safe to say that “Economies grow despite Governments and Politics rather than because of them” and many Peeps just don’t realise this.
Note, the US Markets are closed tomorrow for President’s Day - so we might not get much action in the UK and Europe either.
The Chart below has the Weekly Candles for the DOW - my Green Arrow is rudely pointing at a Big White Up Candle - this is bullish.
In the bottom window on the Screen below we have the RSI (Relative Strength Index) for the DOW. On a reading of RSI 74 this is extremely high and it is exactly this ‘Overboughtness’ that needs to be unwound - but as I mentioned earlier, we could just go Sideways to achieve this.
Note, RSI 70 is usually seen as Overbought and RSI 30 is Oversold.
The S&P500 is very similar to the DOW so I won’t show it this week.
Pound Vs US Dollar
The Chart below has the Daily Candles for the £/$ going back about 4 months. My Green Arrow is pointing to a Big Down Candle from Friday which is obviously a sign of weakness in the £ but it is worth appreciating that there is a lot of Support just below and in a similar way there is a lot of Resistance up above. This all ties in with the Sideways feel of so many Stockmarkets as well.
The Key Support here now is probably about 1.2347 as per my Red Text Box and on the Upside there is Strong Resistance at about 1.2556 and a bit higher. The FTSE100 tends to like a Weaker £ but if it does go Sideways, then the FTSE100 could easily move in the same tedious way.
The Screen below has the Daily Price Candles for the £/$ with the Blue Wavy Bollinger Bands both above and below them. My Black Arrow is showing how the Price is now sat on the Bottom Bollinger Band - this might act as Support from which the £ can go up a bit or maybe it will go Sideways but move off the Bottom Bollinger Band in the process.
The Screen below has the Weekly Candles for the £/$ but I am not fixated on those here. What I want to point out (and my Green Arrows are showing this) is how as time goes on, even without a strong move Up, we will get a ‘Bullish Golden Cross’ whereby the Darker Blue Wavy Line 50 Day Moving Average crosses over the Lighter Blue Wavy Line 200 Day Moving Average - the only way we would avoid such a positive scenario for the £ is if we have a further plunge down fairly soon. In just a few Weeks, even just by going Sideways, we could get a Golden Cross.
Brent Oil (Spot)
Below we have the Daily Candles for Brent Oil (Spot) going back about 6 months. This is so similar to the situation last week when I last did these Charts - we are really going Sideways within the Band that my Green Arrows are pointing out - i.e. between $54 and $57.535. I get a hunch that this will be the story for a while now - I think we could easily be around this $50 kind of area for many months. The FTSE100 tends to like a rising Oil Price due to the heavy Weighting of the Oil Giants like Shell RDSB and BP. - so this hints at yet more tedious Sideways action for a while.
The Chart below has the Daily Candles for Gold (Spot) going back about 5 months. My Black Arrow is pointing out how the 50 Day Moving Average Line is turning up - that’s promising for Gold Bugs. Next my Purply Arrow is showing the Bottom Line of an Uptrend Channel which is the same sort of Purply colour - it is good if we can stay within this Uptrend Channel.
Last Week I probably showed the Yellow Circle which points out the ‘Tweezers’ Top we got back then - my Green Circle now is pointing out a similar thing and for progress to be made we need to Breakout over $1245 very soon.
The Screen below has the Daily Heiken Ashi Candles for Gold (Spot) going back about 5 months. My Blue Arrows are showing where we had a Bullish Period of about 7 White Up Candles and then the Candles started to Narrow and we got several small Red Down Candles as per my Green Circle and now we are in the Yellow Circle which is showing nice Big White Up Candles - this is Bullish and there is no sign of narrowing of these Candles as yet.
Right, that’s it this week - good luck y’all.
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.