» » Market Update Thurs 15 Aug 19: Sell-off Continues some Signs of Abatement: GBP rallies

Market Update Thurs 15 Aug 19: Sell-off Continues some Signs of Abatement: GBP rallies

  • Another day in a sea of red , market action of late has been dire but today’s price action does show some glimmers of hope that selling may be due a respite. While every index closed in the red, all of them closed off their lows and many at indicative support levels. I will post an article on runprofits tomorrow with analysis of the main UK indices and sectors which help inform directional plays.
  • Today saw FTSE 100 down over 1%, FTSE 250 -0.6% and AIM All-Share -0.7%. Oil fell back further to below the $58 level down over 1% while base metals were relatively flat except iron ore which dropped another 0.6%
  • GBP rallied off a significant double bottom to gain over 0.5% against USD: this may be less GBP strength as it is USD weakness as pressure mounts on the US Fed to lower interest rates. This should also boost gold which has been largely sideways over the past two days
  • Yesterday saw US markets make major moves to the downside with the Dow Jones losing over 800 points in one session. While the media make that 3% sound remarkable, it needs to be put in perspective: the US markets in general are less than 8% off their all-time highs. The UK markets by contrast are down almost 10% in a month while the FTSE 100 is down 12% from its all-time high with the FTSE 250 down 16% and the AIM All-Share down 25% since its Oct ’18 recent highs (and down over 70% since its all-time highs in 2000).
  • GBP has made UK stocks even cheaper in USD terms given recent weakness.  So who is right? Has the UK been oversold and at bargain prices or is the US oblivious this sea of troubles?  Political uncertainty in the UK can account for weak domestic FTSE 250 and AIM stocks but shouldn’t be so resonant in the big cap FTSE 100 companies with overseas earnings. The FTSE 100 is dis-proportionally made up of big cap oilers and miners, the slew of global data suggesting a recession may be on the cards has inflicted huge damage on sensitive cyclicals. The sector plot below shows how Mining, Oil &Gas and Banks are down 10-15% in the past few weeks. By contrast Healthcare, Pharmaceuticals, Telecoms and Tobacco are all outperforming, These are classic sectoral shifts suggestive of recessions. Much of the damage done to the FTSE 100 comes from falls in the cyclicals.
  • Market sentiment shows US VIX remaining elevated at 21 but below yesterday’s highs. A higher VIX would be expected if more volatile days like yesterday were on the cards. The Fer &Greed Index is at 21 and Extreme Fear but much higher than the December ’19 single digit lows. Either market participants are complacent or this is a sharp short sell-off. In the UK, of the 1405 stock covered, 624 were sold, 430 were bought while 351 were unchanged. All of the UK indices are below all of their moving averages with the FTSE 100 making the most dramatic shift from a bullish to bearish bias.
FTSE 350 Sectors Month vs Week Price Change
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