FTSE 100's future could depend on today's events

UK blue-chips have tumbled this month, but have they fallen far enough, or has the blood-letting just begun? Rebecca O'Keeffe, head of investment at interactive investor, talks volatility and catalysts.

Investors are breathing a sigh of relief Friday, with European indices clawing back some of their recent losses. 

However, the verdict is still out about current valuations and while some investors are viewing this as a buying opportunity, many others are maintaining a more cautious stance and waiting for clear signs that this was a temporary pull-back rather than the start of a more pronounced correction.

One major plus point for investors who are viewing the market as oversold and a good time to buy is the VIX index. 

Previous sell-offs have fizzled out when the major volatility index reached the high twenties, and yesterday’s high saw the VIX reach 28.84, before falling back (see chart below). 

Over the past few years, this level of volatility has typically proved to be a market turning point, the one exception being early-2016.

Source: TradingView      Past performance is not a guide to future performance

Trade wars, rising interest rates and slowing growth have been front and centre in terms of big macro reasons for the rout, but the reality is that investors need to be asking whether valuations can be justified by company profits or have markets got ahead of themselves? 

The start of the US earnings season sees JP Morgan, Wells Fargo and Citibank all reporting today, and good results could provide the catalyst that sees markets recover their recent losses, while disappointing numbers are likely to jeopardise any positive sentiment.

Source: TradingView (four-hour chart) (*)      Past performance is not a guide to future performance

*Horizontal lines on charts represent previous technical support and resistance. Diagonal blue line of first chart is FTSE 100 uptrend since 2016 low.