Await trigger for short FTSE opportunity

Price at time of writing – 6836.

My last FTSE update for 2013 called for the short recommendation to be stopped out on strength above 6690, so I begin my 2014 updates with a neutral recommendation.

Despite the ongoing resilience of most global share markets, my view remains that equities have transitioned to a higher-risk investment. Indeed, the unique wealth-creating opportunity offered up some five years ago is unlikely to be repeated. I believe it’s likely that the share market will become much more stock-specific in 2014, with increased takeover activity counterbalancing profit warnings from the likes of Deutsche Bank, Nintendo and Shell.

The rising tide of asset appreciation – deliberately and successfully managed by various central bank monetary policies – may not be completely over. But the increasing cost of ten-year capital, which is the benchmark yield in the terms of many capital projects, has the potential to create some serious headwinds. The US ten-year Treasury yield is the indicator that the Federal Reserve will monitor when determining its next quantitative easing taper.

For much of the past couple of years I have been anticipating the FTSE 100 to rise to a target band centred at 6922. A rise to this level would complete a 100% advance from the unique low formed in March 2009. Although my last updates in 2013 recommended jumping ship a little early on this target, a premature exit was warranted to manage the risk in holding such speculative long positions. A further rise of 86 points, or just 1.25%, will finally complete this move, providing the trigger for the next shorting opportunity.

Recommendation: neutral. Short the index on a further rise to 6922.

FTSE 100 chart

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