The last few days have seen some big swings either way in Equity markets.
“Where next?” I hear you ask! Our chief market analyst Clive Lambert was on CNBC last night trying to pick the bones out of this price action, looking at the S&P 500 Futures, FTSE Futures, and suggesting Fresnillo as a Stock to buy.
See it on our media page by clicking here.
This morning’s reports on Silver and the FTSE would have reaped dividends for our clients, for different reasons.
Here’s the text of the FTSE Futures report:
We have posted the “all sessions” chart today because it’s actually a bit cleaner, and also shows what we’ve seen overnight; selling.
Selling to the 200 day MA as well, this well watched proxy sitting at 5771.5 today.
Yesterday’s low was 5827 in day session trade so this is a bold resistance above, and if the bulls don’t quickly retake this mark we will likely break through 5771.5 and head to 5615.5 then 5584.
If the bulls can dust themselves down from this weak open and get us back through 5816 and 5827 we then need to retake 5869.5 then fill the gap to 5912.
My gut tells me this weak open is a buying opportunity. The chart tells me otherwise…
Nice “gut feeling”!
Our Silver commentary was a bit more “nailed on”, and since we sent it out first thing this morning in the UK it traded up to 37.330 (as we tuck into our lunch in the UK, awaiting the open in the US):
Lunchtime (in the UK!) Update: We now have day session gap support at 36.400, protected by the broken resistance at 37.020, the latter having done a job in the last hour or so “on the retest”.
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Last week we posted a Blog about the potential Head and Shoulders pattern forming in the FTSE Futures. Things got interesting with respect to this yesterday, which was the crux of our morning report, reproduced below.
The fact that we’re not breaking this line PROPERLY does suggest the market’s ambilvalence is set to continue.
Towards the European close yesterday we were selling off, and we’d got through 5858, the Neckline of the Head and Shoulders pattern that we’ve been watching of late. So on the “Day only” chart that we prefer, as above, we have a slight closing break of this Neckline, and a sell signal.
Except we’re called 50 higher this morning and this will instantly tell us that the sell signal is a false one.
It looks like the market is happy in it’s current moribund range-bound confused stupor, and we’ve got to put up with this situation for a bit longer.
We’re not getting any firm signals at the moment, then, and this counts for the Individual stocks as well, making our (and your) job a rather tough one.
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We have sent an extra report to our customers this morning, outlining the POTENTIAL sell signal that’s looming in the FTSE Futures. Here is the text and accompanying chart:
We have a potential “Head and Shoulders” pattern forming in the FTSE, although the sell signal has not been given yet.
The sell signal comes if we break the “Neckline” which is at 5851, and probably on a closing basis as well (although a “clean” break on high volume would convince me enough to take the signal “intra-day”).
The target, using the traditional measuring technique for this pattern, would be 5600.
Of course this also comes off the back of the recent failure at 6095, which was very similar to the February high/failure (6086.5). The “Double Top” sell signal from this situation would only be triggered on a move through 5584.5, so a long way off yet….
5851 is on the radar, however, so “Watch this space!”
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Below is a sample of a note we sent to our “Premium” clients today; those clients who receive our Trade Recommendations service covering Individual UK Stocks. We’ve gone a bit quiet on this front of late as we await some clarity from the markets. In fact it’s been one of the most frustrating periods I can remember on this front! This frustration may show in what we put out. If you are trading or Broking CFDs on UK Equities and required Technical Analysis to aid your decisions or offer ideas please let us know (clikc the link below) and we’ll set you up with a Free Trial.
http://www.futurestechs.co.uk/professional_trial/
So to today’s note:
If you’ve been wondering why we’ve been so quiet of late it’s because we’re doing lots of head scratching when looking at the charts right now. The Equity markets have been a very fraught hunting ground of late!
So with an apology for lack of recent recommendations here’s proof that we’re not just sitting around doing nothing: A list of every FTSE Stock with a line (sometime just a word!) to say what I’m seeing and why we’ve not got a conviction trade on!
AAL - Looks heavy, but is holding it’s 200 day MA (2950) and previous support in the low 29’s. Scope to 2490 if it breaks
ABF - Very rangy feel to the chart in the short term. Bigger picture suggest scope for weakness to 960 or even 920.
ADM - Hasn’t done anything since September
AGK - Could be worth buying, looking for a hold above 1700
AMEC - Hasn’t done anything since November
ARM - Probably worth buying, but Reward/Risk isn’t right
ANTO - Looks bearish, but downside could be restricted to 1208
AU - Going sideways - No trade here
AV - Going sideways - No trade here
AZN - 200 day MA at 3095 might weigh. 3145 and 3175 also resistance
BAE - Been going sideways since October 2008!!
BARC - Breaking support at 277.50, but next support is 261, then 256, then 253. Too many supports below for a decent short risk/reward wise
BATS - Bullish, should hold 2645
BG - Broke support at 1400 last week but came roaring back. Gap above at 1498 is a worry for the bulls though.
BLND - Slow, steady riser. Good one to hold, but buying at these levels?
BLT - Left an “Island Reversal” back in April, when we shorted it. Scratched the trade on the subsequent high. Doh!
etc etc!!
As the FTSE Futures near important resistance levels, the Year’s highs, we posted a comment this morning that started off in our normal level headed manner, then descended into something of a rant! Here it is for all to share!!!
“Today could be all about 5950. A hold above here keeps the bulls in the box seat and suggests we can head to 6030 then 6086.5″.
Stop there! Say no more. We held 5950. We bounced from a low of 5968 to hit the heady heights of 6033.5 by the day session close, getting up to 6039.5 in the after hours trade, and 6044 in today’s overnight trade.
So we are seeing off 6030 and now have our eyes trained upon 6086.5-87.5, the February high. This rally is on low volume. Back it while it lasts, but don’t be surprised if it doesn’t, and don’t come crying to me if it falls over, because I’ve been worrying about this and warning about it all the way. Houses built on sand don’t stay up for very long. Rant Over. Enjoy the Wedding!
As well as the FTSE FuturesTechs covers 22 markets every day, giving Chart, Support and Resistance levels, plus Commentary each morning before the markets open. This award winning service is widely read by Investment Professionals, and some of our clients have been with us since we started over 10 years ago.
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‘Sell in May and go away, come again on St. Leger’s Day’, or so the ancient wisdom goes. According to convention, investors do well by exiting the stock markets during the quiet summer months, only returning in mid-September.
Not satisfied with old wives’ tales here at FuturesTechs Towers, we decided to do a little bit of empirical research and find out for ourselves if this had worked in years gone by.
In order to spice it up a little bit, and to add some “timing” to the whole affair, we also decided to consider the amendment offered by another technician (the excellent and well-respected Axel Rudolph at Dow Jones): “Sell in May and go away, come again on St. Leger’s Day so long as there is a Stochastic crossover sell signal.” Ooh-err!
The results?
It turns out that this rule hasn’t been too bad at all, looking back for the last 20 years.
We put the start of the summer period as the day of the first Stochastic crossover sell signal in May or, if there was none, as May 31st. The end of the summer was defined as the day of the St. Leger Stakes, the horse racing meet in Doncaster that’s been running since the 18th century, and which is always held in mid-September. We use the Slow Stochastic indicator with the typical parameters.
So here’s a simple comparison: the returns for each of the last twenty years (blue) versus the annualised returns for each summer (red):
Fig 1.
The chart shows that the red series was quite a bit lower than the blue series on a couple of occasions (1992, 1998, 2001, 2002, for example), meaning that summer returns were much worse than the annual returns in each of those years. And we also see that the years in which the summer significantly outperformed the year as a whole weren’t very common.
So now let’s compare the same annual returns versus the returns achieved by sitting out during the summer period (selling in May and coming back in September). The annual returns are in blue again, with the returns from the “Sell in May” strategy in purple:
Fig 2.
This shows that the returns from sitting out for the summer months were better than for the year as a whole in 1990, 1992, 1998, 2001, 2002, 2006, 2007 and 2008.
What’s also going on here, though, is that the returns from summer were greater than zero for 11 of the 20 years in question, so that for each of these years you were better off staying invested rather than sitting out. Even if the summer returns weren’t that great, they were better than the zero gained by doing nothing for that time.
In general, though, the records show that there has been some good success in leaving the fray for summer, as illustrated by this summary:
1989-2008 Average Returns
Annual 6.03%
Summer (annualised) -1.03%
Sell in May Strategy 7.39%
The average return for each of the past 20 years has been 6.03% but, by employing the Sell in May strategy, the average return rises to 7.38%. The average of the annualised returns for the summers has actually been negative.
Now let’s look at the suggested amendment to the rule, and use the Stochastic sell signal. We find that when you only sell out in the years when there was a sell signal, the strategy does improve a little. This is illustrated by Figure 3, where we simply stayed invested for the years when there was no signal:
Fig 3.
Waiting for a Stochastic sell signal meant that you would still have been protected from summer losses in 1990, 1992, 2001, 2002, 2006, 2007 and 2008 (you would have suffered pretty big losses last year anyway, of course). This strategy performed worse than simply staying invested for the year in 1989, 1991, 1993, 1995, 1997 and 2005. The average return from this strategy, however, is still an improvement on simply selling out (which was already an improvement on staying invested):
1989-2008 Average Return
Annual 6.03%
Sell in May 7.39%
Sell Signal Strategy 7.49%
Looking exclusively at the years when there was a sell signal, the worst return (except for 2008) was -3%! Some people might consider this to be good value risk management, even if it means missing out on some growth during good years
Our summary box looking only at the years with a sell signal helps to prove how the rule made a big difference:
Sell Signal Years Average Return
Annual 5.75%
Summer (annualised) -3.64%
Sell in May Strategy 8.01%
This isn’t a very formal analysis, of course, but could be worth thinking about. In terms of this year, we had a Stochastic sell signal for the FTSE on the 13th of this month (the vertical line on the chart below).
Fig 4: Stochastic sell signal for the FTSE-100 index, 13th May 2009
The market has gained a little more since the signal, but anybody who thinks that the rally is probably over now might take encouragement from the historical record of weak summer trading. That would make this an opportunity to get out, only coming back for race day in Doncaster next autumn.
Graham Neary (graham@futurestechs.co.uk)