UK Market timing Indicators

With March continuing the rally in equity markets which started in February on the back of further central bank support operations, we saw these indicators recover some more ground this month.

All the main indices such as FTSE 100 , 250, 350 and All share still remain in bear trends some 0.2% below their respective moving averages. The one outlier is the FTSE Small Cap index which after producing the strongest returns of over 4% this month, has managed to push 0.7% above the moving average, suggesting a more bullish trend is underway again in small cap land, perhaps.

However looking at the FTSE price chart (see  chart at the end) I note that it has been struggling to get through the 6200 resistance level which I highlighted last month and it remains below the falling 200 day moving average too. This leaves the market at something of a crossroads. On the one hand, after such a strong bounce and given the resistance, it would not be that surprising to see a reaction. So we may well see a bit of relapse which may then keep the main indices in their current bearish trends for now. Of course if investors do get over their recent concerns about global growth and sluggish corporate profits growth then equally the market could push onwards and upwards and restore a more bullish trend.

Talking of economic concerns I also mentioned last month that the US Unemployment numbers are apparently a good leading indicator of forthcoming recession, despite them generally being perceived as a lagging indicator. Combining this with the moving averages on equity indices discussed above can apparently improve the returns from this trend following strategy by reducing whipsaws (selling and buying back in shortly afterwards) and keeping you in the market for more of the time until a recession looms on the horizon. Therefore it was encouraging that the US Non-Farm Payrolls were stronger again yesterday and that the trend in this remains below its moving average, which is positive in this case.

In addition more doveish comments from Janet Yellen recently, have led investors to push back rate rise expectations to the second half of this year at the earliest as it looks like the Fed wants to continue to support growth rather than fight nascent inflation aggressively with rate rises. Thus on balance, after a short term relapse maybe, I suspect Investors may continue to regain their mojo and be prepared to put some risk back on and drive markets higher again in the belief that they still enjoy the support of the Central bankers. How long this can go on for and where it all ends is any ones guess and I'm starting to think that the Central Bankers don't know either and they are just making it up and reacting to events as they go along in the absence of help on the fiscal side of things from governments generally. Still don't worry, be happy and have a great weekend.