UK Market Timing Indicators.

As I'm sure you are aware by now February was a poor month for stock markets and the UK was no different. The larger indices led the way down with the FTSE 100 producing a -2.55% total return. Mid and Small Cap stocks held up slightly better this month again but they also produced negative returns, so there was no place to hide from the down draught. This has brought the main larger and broader indices such as FTSE 100, 350 and All Share below their simple 10 month moving averages by 0.8%., 0.7% & 0.6% respectively. While the Small Cap and Mid Cap indices, having held up slightly better in the sell off remain just above their moving averages by 1% and 0.1% respectively for now.

Thus a mixed picture on these indicators which ordinarily would suggest a note of caution towards the market in the main and could suggest the start of a more bearish trend generally. As discussed here before however, these type of indicators can be vulnerable to whipsawing - where they force you to sell out and then buy back in higher up when they then subsequently turn positive again. Thus I tend to use these as a guide to overall market mood, but I am not following the signals in the short term unless they are confirmed by economic indicators like economic growth generally and in particular the US Unemployment rate, ISM indices and the shape of the yield curve.

Since these other indicators are all currently in positive territory I'm not inclined to take action based on the market timing indicators other than thinking that it might represent a buying opportunity in the short term - perhaps. Having said that though it is worth bearing in mind that the general consensus is that we have entered the late stage of this particular cycle. Now while last year was unusually calm and profitable making many novice investors think that this game is easy and that they investment gods, I suspect this year will be much more testing. Indeed the late stage of the stock market cycle is typified by increased volatility and the market has certainly been taking no prisoners on the hint of any disappointment so far this year.

Now that's not to say that the market can't go higher from here if the earnings and dividend growth that is expected is delivered. It is just that progress from here is likely to be much less serene and will probably be more a case of two steps forward and one step back. We will however of course have to keep an eye on how "events" pan out and see if all the concerns about rising inflation, interest rates, wages, trade tariffs, BREXIT etc. etc. finally prove sufficient to derail economies and stock markets. So given the icy weather and the cooler tone in the market wrap up warm and be careful out there as sliding down hill on snow and in the markets can be painful.