Dazed and Confused.

Well Friday turned out not to be so bad in the end and the rally that started then carried on on Monday for a rise of about 5% from the recent lows. Today however this rally seems to have run out of steam as an initial rise has faded to leave the index largely unchanged. Looking at the technical picture for FTSE in the chart below:

shows the downtrend of falling highs and lows remains in tact for now. Since December rallies seem to have failed around the 50 day moving average which currently comes in at just under 6000, while a simple line down from the peak would be just above 6000. Thus if the downtrend should continue it seem likely that this rally, if it has not already petered out, may not go much further than about the 6,000 level. I note also that the falling 200 day moving average is still some way off at 6371 currently. So in the absence of a very strong further rally from here by the month end it seems likely that the monthly timing indicator will remain in bearish territory.

Having said that though there is an on going debate as to whether this is just a natural correction to a long in the tooth bull market. Or if it extends convincingly beyond 20% then technically it will become a full blown bear market. However, as the old saying goes, the stock market has predicted 9 out of the last 5 recessions or something along those lines any way. Thus the $64m question from here is if this sell off on the back of global growth concerns and falling oil prices etc. is anticipating a recession or if it is just a correction. Obviously if we do slide into recession and have another debt crisis of some kind then clearly the market could go onto fall further from here.

The counter argument to that more bearish case is that this is just a market wobble and that the economic outlook has not actually changed that much. We saw this today for example with an in line update from Mondi (MNDI) and a slightly better than forecast set of numbers from Pendragon (PDG) the primarily UK car dealer. Now while these are effectively looking in the rear view mirror, clearly the road ahead is more important. On this for example Pendragon seem fairly relaxed about a steady kind of outlook. Now some could say they are being complacent, but given the improving real incomes from falling petrol and utility prices and some pay rises plus interest rates remaining on hold for the year this doesn't seem unreasonable to me. Indeed in a report from the Centre for Economics and Business Research they insisted ‘there are still strong fundamental reasons to be positive about the global economy’.

Read more: http://www.thisismoney.co.uk/money/markets/article-3446892/World-NOT-brink-financial-crisis-markets-wrong-global-economy-says-UK-think-tank.html

This makes the bullish case for a more steady state, but in a balanced way also discusses the concerns of a former BIS economist, William White, who predicted (early) the 2008 crisis and who foresees similar problems now as debt burdens have generally increased since 2008.

For what it is worth I would be more in the correction camp for now given the economic outlook still seems OK and we don't appear to be heading for a recession just yet, although economists rarely see them coming do they! Given the on going downtrend in the market it would seem wise to remain cautious for now, If however you have not taken out an equity ISA for the current tax year and wanted to and you are likely to be investing more in the years ahead, then at least you now have the chance to do it at around 3 year lows. You could then add more in the years ahead to average out your entry level rather than stressing too much over market levels etc.

Not sure if that helps anyone at all so I'll leave it there for today, mind how you go and here's a cool cover version for you to sum up how investors might be feeling right now.