Big changes are afoot in the FTSE…
We are now well into summer, which is usually a quiet period for the markets, as participants drift away for their annual holidays.
This year though the flow of traders heading for the beach may be delayed, or perhaps interrupted by the interest rate meetings of the Bank of England, the US Federal Reserve and the ECB, all of whom will convene over the coming weeks.
We may get an early clue as to which way the wind may be blowing from the Bank of Canada, who meet to decide about interest rates tomorrow.
If they move to raise rates things could get a whole lot more interesting. I’ll update you on that when we hear the outcome.
The FTSE 100 finished the week at 7350.92, but it remains in a downtrend dating back to June 2nd.
What interests me here is what might happen if the index were to break below the support level around 7300…
You can see from the chart below there is little in the way of support beneath this level until 7200 and the 200 day moving average just below that.
If we start to see markets getting excited about rate rises, equity indices should, by and large, start to sell off once more.
That’s because the FTSE is sensitive to exchange rates, as the majority of its constituents are exporters and the pound could appreciate if the market senses the BOE is getting ready to raise rates.
In terms of the balance of power between the trends within the FTSE 100, there has been a subtle but visible shift…
The bulls are still in charge, with just over 58% of stocks being in a bull trend, but this is a sharp drop from our last observation on June 30th.
As such, the bears have been making ground and now make up almost 42% of the FTSE – as the chart below shows:
The chart below shows the declining FTSE100 bullish percentage quite clearly. As you can see, this reading has now moved below the prior lows seen at the beginning of February.
It looks to me as if the path of least resistance for the bullish percentage reading (that is the number of stocks in a bull trend within the FTSE 100) is downward.
Not least because the average bear-trending stock in the index is 11.48% below its trend change price, which implies there is plenty of work to be done before the bullish percentage could rise again.
I also note the fact that there are currently 15 stocks within the FTSE 100 that are in weakest bulls trends, so that’s approximately 25% of all of the current bull trends in the index.
The question will be how many will defect to the other side in coming days and weeks.
Of course, if any do defect, my Trading Point Pro members and I may have even more trading action to get in on.
If you want to get in on any of that action, simply click here to become a member of Trading Point Pro.