Chart of the week: Is FTSE 100 going lower than you imagine?
After calling the FTSE crash spot on, this top analyst updates his charts and gives a bounce point.
13th March 2020 09:49
by John Burford from interactive investor
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After calling the FTSE crash spot on, this top analyst updates his charts and gives a bounce point.
I am not bringing glad tidings of great joy to investors in my recent COTWs this year. But, as an independent market analyst, I always call ‘em as I see ‘em. Many of the popular pundits have a vested interest in not frightening the horses and urging everyone to stay invested.
They earnestly urge you to refrain from panicking and to ‘stay the course’. Are you staying the course with the FTSE 100 off by 2,200 points (28%) in just a few short weeks (as of Thursday)? Was that a shock to your system? I believe it was to many.
I talk to many small investors and all (100%) have not woken up yet to the devastation already in progress. They seem like deer frozen in the headlights. They are all ‘staying the course’ - for now. But will they keep sitting on their hands when the market loses another 10%, or 20%? Like many, they will be selling low right near the bottom as they throw in the towel when the mainstream media headlines become really grim.
Sadly, most investors ‘marry’ their investments and have a personal attachment to them. When values dip, they do not sell - “I can’t sell now, I am losing too much!” is the frequent refrain.
But investments are only a means to an end. They are designed to be bought – and sold.
In fact, there is little sign of panic selling yet with US investors buying on the way down. To me, that is a very bearish sign and portends much lower values.
Of course, my regular readers will not be surprised by these developments. Last year, I prepared my clients for such an event. In my COTW last 23 December, I wrote: “I expect a bear market in 2020”. And what a bear market!
I also wrote:
“I am maximum bearish. The bottom line: This may be a great time to consider raising cash.”
The US indexes made all-time highs in mid-February when bullish fervour rose to manic levels. All of my bullish sentiment indicators were off the scale.
Most view that as bullish. I take the exact opposite stance. When everyone is fully loaded with shares, there is only one way for the market to move – down. And the greater the bullish consensus, the harder the fall. That is what we are seeing now.
So where are we (as of Thursday) in the FTSE 100?
Source: interactive investor Past performance is not a guide to future performance
As I write, it has descended to the Fibonacci 50% retrace of the entire 2009 bull run. The slide off my wave 2 high has been very steep as befits a third wave. Remember, these waves take no prisoners! Buying into it is the classic falling knife exercise.
At the current 50% level (around 5,570), we could see a bounce of some sort and then a further decline to the 5,000 area before any meaningful support can emerge. But with such volatile moves, it makes no sense to be more precise than that.
Note that this must be the only serious market commentary that doesn’t mention the coronavirus! My regular readers will understand why.
Longer-term, I do not see the bear market ending anytime soon. I give it about two years.
For more information about Tramline Traders, or to take a three-week free trial, go to www.tramlinetraders.com.
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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