FTSE lacking conviction

Price at time of writing – 6689.

Despite plenty of evidence that equities have entered a riskier, more volatile period, the FTSE is down just 19 points since my last update.

Although the market action lacks real conviction, my recommendation to stay short remains unchanged.

European markets are demonstrating far greater volatility during the ongoing geo-political events in Russia and Ukraine than their US counterparts. This is not surprising, as I believe Europe frequently talks itself into a depressed state, with an ever-present tendency to see the glass as half empty. I believe the region’s central bank policies lag far behind the decisive actions of the US, and when catch-up policies are needed, they are initiated far too late. A good example would be the current quantitative easing monetary policy debate. The US foresaw a looming deflationary crisis years ago – and quickly established very aggressive monetary policies to counter the threat – but the European Central Bank was still concerned about inflation. Where the US is now able to begin tapering its quantitative easing policy, Europe is still contemplating whether to begin its own version.

Technically, even though the FTSE 100 has yet to fulfill my long-term target of 6920, I recommend staying short while the index trades below 6775. I am mindful, however, that the longer it takes for any real downside momentum to emerge, the less likely a significant correction will occur.

Recommendation: stay short, or sell on any further rise to 6920. Target 6293. Stop-losses can remain unchanged and triggered on momentum above 6975.

FTSE 100 chart

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