FTSE pull-back sees it oversold

Price at time of writing – 6440.

Last week’s extended decline of 112 points triggered my recommended stop-losses, and positioned the FTSE to extend this short-term pull-back.

Further, the break below 6475 has activated my outright short recommendation. As mentioned last week, this scenario was looking increasingly likely given short recommendations had already been triggered on other global indices such as the Dow Jones, S&P 500 and German DAX. It will always be a tough ask to swim against the tide of falling markets in the US and Europe. My target of 6922, so nearly fulfilled last May when the index hit 6876, must now wait for another cycle.

The break below the support band 6491-6556 is likely to see the index extend the current correction from its recent high to one of 8.33%. The stock markets have witnessed many sharp pull-backs (and rallies) of 8.33% since the onset of the financial crisis in late 2007, and it may not be much different this time around. Indeed, a correction of this magnitude may even have the positive effect of cleaning the market of some very complacent attitudes of late. As ever, a market will only turn at a time when few people are expecting it to.

The speed of the FTSE’s pull-back has seen it become somewhat oversold, and it may first need to rally back to 6491. This would provide an ideal opportunity to sell the index more aggressively before a likely resumption of its new downtrend.

Recommendation: Stay short, or sell again on any rally back to 6491. The target becomes 6251. Stop-losses can be activated on strength above 6600.

FTSE chart

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.