July saw a further improvement in the UK Equity Market with Mid and Small Cap indices leading the recovery as investors got over the shock of the BREXIT result towards the end of June. This reflected the fact that some of the knee jerk heavy mark downs of domestic cyclical companies got reversed to a certain extent as investors presumably felt these had been over done and because early indications were that the world had not ended as suggested by project fear.
In terms of the Monthly Timing Indicators, (which regular readers will know I have been tracking since January 2014), given the positive returns this month, these have all turned bullish again including the small and Mid Cap indices which were still below or flat against their 10 month moving averages last month. The FTSE 100 continues to look stronger trading some 8% or so above its moving average which incredibly, is the largest bullish divergence we have seen since I started tracking these indicators (see chart above). The Mid 250 & Small Cap indices unsurprisingly look less bullish but nevertheless still trade some 3% and 6% or so above their moving averages respectively, although this is not as extended as they were back in May 2105 when they reached levels 11.2% and 7.7% above their 10 month moving averages.
With that in mind and although this may be a bull market Jim, but not as we know it, thanks to the Central Banks monetary policy support boldly going where no man or woman has gone before, I'm not sure I entirely trust this rally given the otherwise risky looking macro background. Then again the old sayings like "the market climbs a wall of worry" and "the market can remain irrational for longer than you can remain solvent" spring to mind. So I'll continue to ride the bull for now as the other indicator that I have started looking at (US Unemployment) to help avoid whipsaws in these indicators remains supportive, although it is getting closer to breaking up through its moving average which would be bearish in this case. (See Chart at the end).
In conclusion the UK Equity market seems back into bull market territory despite the BREXIT vote and fears of a looming recession in the UK and possibly elsewhere and we have some more US employment data to watch out for soon. As it is however August and the silly season and as I said earlier I'm not sure I would chase this FOMO (fear of missing out) rally given how extended FTSE now looks and with the often tricky autumn period still to come not to mention the heavy overhead resistance around the 7000 level. So enjoy the rest of the summer whatever you are up to and don't forget to keep calm and carry on compounding!