It’s late on Sunday Afternoon and as usual I want to look at the Index Charts and see how things are shaping up. This is particularly key for me as I have a huge Short FTSE100 Position on to Hedge my Long Portfolio of Stocks and this has meant that while the Markets have rebounded strongly in the last week or so, I have not taken part in these gains as the Shorts have lost out. I am still of the view we are in a Bear Market and that 2016 will be a tough year for ‘Buy & Hold’ Investors so I am pretty sure I will be able to unwind the Shorts if we get further big falls and I see the usual April/May sort of time as being a big problem, particularly with the Brexit Vote due late this Summer.
Rather than being a ‘Buy & Hold’ Market, I think this is much more a Trader’s Market - short term In & Out will be the way to make money - but this is very difficult and I cannot be arsed to look at a screen all day. So I would rather stick to my Long Term Investing style and use Hedges to lower my Downside Risk.
With regards to my Strategy, I am happy as I have almost Zero Market Risk due to my huge Short Position. I am in no hurry to Buy things and probably more inclined to Topslice and Sell the odd Stock depending on how things move in coming weeks. It is annoying that I got my Short Positions on with pretty poor timing but the Risks are firmly to the Downside and I have no doubt I will be able to get out of those Shorts if I need to in the next big drop. In addition, I think we are still in the early stages of the Bear Market and I want the protection of the Hedges.
Before diving into a few Charts, I want to dig into some Historical Stats that are worth mulling over.
The Grizzly Numbers…….
Simon Thompson in this Week’s Investors Chronicle on pages 14 and 15 did a good piece about his feelings for the Markets and he talks a lot of sense. The bit that stood out to me though was the chunk of text below the heading ‘Learn from History’. The Key bits were as follows:
The recent Bull Market has been something like the 2nd Longest on record I think (I have not checked this, but I am sure I have seen it mentioned a few times) and from the Bullet Points above this implies we could get some chunky falls. In addition, the points above suggest that the recent falls we have had are nowhere near deep enough compared to the normal experience of Bear Markets (the All Share is off about 12% from the Peak). You have been warned…….
On the other hand, the superb UK Stockmarket Almanac 2016 has the following stats on the February markets:
For the coming Week (commencing 1st February 2016), the FTSE100 has been Up for 68% of Years with an Average Gain of 1%. With the strong rebound since the Lows in mid January, it is unclear to me if we can continue such strength. We shall see…….
As usual, I have used the wunderbar ShareScope software to knock up some simple Charts. The ScreenShot below shows the Daily FTSE100 Candles over the last 9 months or so. First thing to note is my Big Red Arrow which is pointing to the Red Downtrend Line which is a dominant feature on this Chart and it is critical for the Bulls that the Price can Breakout of this line. Even if we do get such a Breakout (which would undoubtedly be positive) we would really need to see the Price up over 6500 to be pretty sure the Bear Market was dead and buried.
You should be able to see there is a Blue Horizontal Resistance Line at 6450 - even if we can Breakout of the Red Downtrend Line (which would need a move over about 6200 - 6250) then the Price would need to get over this 6450 Resistance Area which I suspect will be very formidable.
We had a very Strong Up day on Friday 29th January 2016 with a lovely bullish Up Candle. However, my Black Arrow is pointing to Resistance at the 50 Day Moving Average Line (the Darker of the 2 Blue Wavy Lines) and the Price needs to get over this.
Another important feature here is marked by my Green Arrow and shows the lighter blue Wavy Line which is the 200 Day Moving Average - this is falling which denotes a Downtrend and is really the essence of the Bear Market. Until this Line levels out and then turns up again, we will be in tough times. A Bull Market needs this Line to be moving up - obviously we are some way off this as the 200 day MA is a very slow moving line. Note the 50 Day Moving Average is falling as well - this is a nasty combination.
At the bottom of the screen you should see a Black Horizontal Line marked with 5639. With the Failure of the previous Key Support Level at 5768 (the Green Horizontal Line at the bottom) this new Line becomes the critical Support and must hold or we really run the risk of moves down to 5200 or less. I am still pretty amazed that we went lower than those Lows from Black China Monday - especially when I remember what a truly horrible and scary day that was.
The ScreenGrab below has the ‘Overbought/Oversold’ Oscillator for the FTSE100 in the bottom window. My Blue Arrow points out that it is very high and this suggests we will get a Pullback in the Price very soon.
On the flipside, on the ScreenPic below we have the RSI (Relative Strength Index) for the FTSE100 in the Bottom Window. My Black Arrow points to where we are now with an RSI reading around 52 - it is a Bullish Development that we have moved up through 50 and this suggests we can go a bit higher before a decent Pullback. The Overbought/Oversold Indicator above and this RSI Indicator are not necessarily contradictory - we might get a small Pullback in coming days to satisfy the OB/OS Indicator without upsetting the RSI apple cart. It is worth realising that the OB/OS Indicator is very Short Term and a ‘Faster’ Oscillator than the RSI.
On the pic below, we have the Bollinger Bands in the Upper Window. My Black Arrow points to where the Price is getting near to the Upper Bollie Band - so we might see a Reversal soon. Note the Upper Band is near 6200 which is consistent with the Red Downtrend Line in the first FTSE100 Chart I showed.
On the Screen below we have the Weekly Candles. My Blue Arrow points to a nice Up Candle we got last Week, turning up off the Hammer Candle for the Week before - lovely textbook stuff. However, note the Black Downtrend Channel lines - this might come into play soon. The falling Moving Averages are also very clear on this chart.
The Screen below has the Daily Candles for the S&P500 going back about 5 months ish. First of all, note my Red Arrow which is pointing to a ‘Death Cross’ between the 50 Day and 200 Day Moving Averages - obviously this is bad. Note the 200 Day MA (the Lighter Blue Wavy Line) is starting to turn down.
My Black Arrow points to a superb Bullish Up Candle we had on Friday - this alone suggests more gains to come - although it is worth appreciating that Fridays are often low volume and can do some pretty wild and unreliable moves - this might have been exacerbated by it being Month End.
My Green Arrow points to Resistance at 1950 which needs to be got over and my Yellow Arrow points to Resistance at 1980 and then you are looking at 2000 as Resistance. The sort of Mauvey/Purple/Pink Line that is right at the top of the Screen is a Downtrend Line which needs to be Broken over - this would need the Price up around 2060 I guess.
In the Upper Window of the Screen below my Green Arrow points to the Upper Bollinger Band which suggests that the Price can move up quite a lot before a decent Pullback. This looks to be around 2200.
On the bottom Window, my Blue Arrow points to where we had a Bullish MACD Cross a couple of days back - this is obviously very good for Bulls.
In the bottom window below, my Tiny Blue Arrow points to the RSI reading of 47 - it would be good for Bulls to get this over 50 but it does look like it is moving up.
The Chart below has the Weekly Candles for the S&P500 going back around 9 months. My Black Arrow points to a nice Up Candle from Last Week following the Hammer from the week before - just like on the FTSE100. This is bullish. On the other hand, my Blue Arrow marks the 50/200 Day Moving Average ‘Death Cross’ - not so good. I suspect the Price can rally up to the 50 Day Moving Average Line at 2000 ish and will then turn down.
Brent Crude Oil
My Chart below shows Brent for the last 7 months or so. My Big Red Arrow is pointing to the Red Downtrend Line which dominates this chart - Bulls need the Price to break over this line - which needs a Price up around $40+ I guess.
My Black Arrow is pointing to a ‘Doji’ Candle which was produced on Friday - this suggests that the Up move is waning and we might turn down soon. Note the Price is up near the falling 50 Day Moving Average Line (the darker Blue Wavy Line) - this may act as Resistance. My Blue Circle shows a Strong Area of Resistance - expect the Price to struggle to get over these levels.
My Blue Horizontal Line with $32 next to it was previously Resistance and it should now become Support for the Price - we shall see. Below this, the Key Support is now $27 where my Horizontal Green Line is.
In the Upper Window on the Chart below we have the Bollinger Bands for Brent Crude Oil. My Blue Arrow points out how the Price is now very near the Upper Bollinger Band - expect this to cap any gains in the Short Term.
On the Chart below I have shown the same Chart I have shown for weeks with the Blue Lines marking the Uptrend and the Red Lines marking the Downtrend Channel. However, my Black Arrow points to a new line that I have drawn in - maybe this is the floor of a new shallower Downtrend Channel - we shall see. It also suggests some sort of Triangle going on between the Black Line at the bottom and the Red Line above it - Bulls will want the Price to pop out above the Upper Red Line.
On the ScreenShot below we have Gold for going back about 9 Months. My Red Arrow points to the dominant Downtrend Line which Bulls need a Breakout of. My Blue Circle points to the recent Price Action and you can see how the Red Line has acted as Resistance and the Price fell away from it. We got a Hammer Candle from Friday so maybe it will have another crack at breaking out of the Red Downtrend Line.
My Green Arrow points out the falling 200 day Moving Average and my Black Arrow points to the 50 day Moving Average which has turned up recently but we are a long way from it crossing up and over the 200 day MA and giving us a ‘Golden Cross’.
Right, that’ll do, I hope everyone has a fun week !! Cheers, WD.
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