Is it a good time for Equities?

Is there room for further gains?

I have been following Bloomberg & CNN since the last post. The views of the various analysts/commentators seem to vary from a bear outlook, bull outlook to minor pull back then a continuation of the bull run. So who do we believe as the private investor? In truth I listen to all of them then look at the markets and do my own analysis, since its your money so you can manage it better than them.

If we look at the global economy we can see that governments are intervening extensively to reduce the possibility of returning to recession and prevent a depression. USA, Europe and Asia are all using fiscal stimulus packages to aid recovery.

If we look at the government figures it points to better numbers indicating that the Fiscal Stimulus is working, however what it does not show is the cost of such extensive action. The main drawbacks being the huge levels of borrowing/debt that will take at least 20 to 30 years to clear and secondly there is no guarantee that it has actually worked.

From a technical analyst point of view it can be observed that the global markets have been in a retracement bull run, which can mean a return to a bear market that may well go past previous lows of March 2009. We can all hope that this is not the case however we need to be prepared to take advantage of any sustained down move.

If you have a SIPP and are looking to safeguard your pension it may be more useful to look at ETF (Exchange Traded Funds), Staples (food, beverages, tobacco etc), Gold and Precious Metals and Cash. Obviously it is essential that you investigate the best options for you and if needed ask a Financial Advisor.

FTSE100

The market is currently at an exhaustion level which means there is a higher probability of a retracement in the current uptrend to the 4920 or 4650 levels.

The Bull target levels are 5335 & 5770. These levels are key down swing Fibonacci retracement levels. The market may test these levels number of times if the resistance holds, there is a good possibility that the market may start heading south again.

If you have any long positions on the FTSE then it may be a good time to lock in some profits.


Dow Jones DJ30

The Dow has been in a bull run since March 2009. However it is at exhaustion level at 9900. There is a good probability of a pull-back to the 9100 level. If the market pulls back to this level and finds support it may resume its uptrend and start moving to the 11,000 level.

10350 and 11,000 levels are key Fibonacci retracement levels and resistance levels of the major down swing. If the market is unable to close above the 11,000 level and start falling it may start heading for the previous lows of March.

As with the FTSE If you have long positions on equities or index, it may be prudent to lock in some profits as we may well experience some pull back.


US Stocks

Wait until DJ30 has pulled back and the Santa Claus rally starts (usually 3rd week of October).

These are technically good stocks that may be worth investigating.

• CA Inc, symbol CA, priced around ($22.17)
• D R Horton, symbol DHI, priced around ($11.80)
• Good Year, symbol GT, priced around ($16.50)
• Texas Instruments, symbol TXN, priced around ($16.50)

Where is the economy heading?

The Budget

The budget should have been a forward thinking, bold and must have provided a roadmap of how the UK will survive the recession and come out at the other end. Unfortunately there was very little substance and little or no effort undertaken to help small and medium size businesses.

The key points that stick in my mind are:

• £2000 to be provided to scrap cars that are over 10 years old. This was meant to help the car industry. Alistair Darlings advisorss must have failed to use the WEB,as a simple search would have shown cars that can be purchased through brokers at much larger discount than £2000 the government is willing to stamp up. The main reason this scheme worked in Germany is due to the way in which cars are purchased. In Germany people pay for cars in full without the need to get finance. As finance is the main bottleneck the £2000 gesture is ill conceived.

• 50% Tax on the 2% high income earners. High earners are vitel for the economy. The entrepreneurs of the country are essential since they provide employment to many people and more importantly are aspirational figures that encourage people to aim higher. This is again a very short sighted decision to divert attention from the crazy levels of borrowing the government have to undertake.

• £600billion borrowing. This is the most serious aspect of the governments failings. The figure is so large its hard to comprehend. This simply means that the UK will be debt for at least 20 to 30 years and future generations will have to pay for this. Unfortunately the media did not highlight the debt crisis instead concentrated on the 50% tax policy for high earners.

UK GDP -1.9

The GDP has confirmed the rate at which the UK economy has shrunk. The only positive news is that the rate of decline has been slower than analysts expected. This does not necessarily mean that the UK will reach the bottom by the end of 2009 as indicated by the government but the decline may not be as harsh as had previously been thought.

Mortgage Approvals

Mortgage approvals figures released indicated that there was a slight increase in March 2009. In reality this is a blip in a downtrend. Leading economists have pridicted that house prices may start rising in 2011/2012 and may only reach figures reached in 2007 by 2015.


Major Indexes

If one were to look at the FTSE100 or Dow Jones Industrial Average it will show that the markets have risen around 30% from the low. This is great news for investors. However the main problem is that the increase has been reached on lower volume, meaning that the indexes have risen due to smaller investors entering the markets. A true recovery can only be confirmed once the volume increase accordingly.


Where is the FTSE100 & DJ30 Heading?




FTSE100 has crossed over the Mid Term Trend Line and is making its way to the Long Term Trend Line. It has come across a lot of resistance at the 200 day SMA(simple moving average). In order for the Bulls to remain in charge there is more likely to be a retracement to the 4125 area then the bulls are likely to attempt to break the 200 SMA. If the market breaks the 200SMA then market will go for the Bull Targets as shown on the chart above. The FTSE is entering a very critical period, as failure to break through the 200 SMA can make the market fall to 2785 level.

If the bulls do break and sustain a rally above the 200 SMA, the market is likely to see institutional investors coming back into the equity market and confirm a possible end to the bear run that had been experienced for almost 2 years.

Dow Jones Industrial Average (DJ30)



The DJ30 has been in a short term uptrend, similar to the FTSE100. From a low of around 6500 it has risen to 8500. The bulls have taken the market through the mid term trend line and through the 50 day SMA. The bulls have also taken out Target 1. The market is likely to retrace encountering resistance on the medium term trend line. For the bulls to remain in control they have to break through the 200 SMA and take out the Target Levels on the graph. Failure to take out the 200 day SMA can result in the market going to the March lows and possibly head towards the 5000 level.

Historically May through to October the markets tend to fall. The degree of the fall can be the key to a full recovery in the markets.


Other useful blogs worth reading


Those of you who are novice traders and are interested in financial markets should take time to view Michael Thompson blog. He works for Worden Brothers and has great insight into using and getting the best from Telechart 2007 charting software. CLICK here for Michael's Blog