A View From Above : FTSE 100 Second Worst Day in History
Part 1 Takes a Quick Look at the damage, Part 2 will tease out some of the insights and identify areas of strength: sign up to our free newsletter to get Part 2
Many will find relief from a day in green like today after yesterday's cataclysmic (and some will hope) capitulation selling. Many may consider selling climaxes such as yesterday as a signal of the bottom and the opportunity to get some bargains. Compared to the corrections in 2018 , 2016 and 2012, the past two weeks of selling has left the UK indices in the most bearish state since 2008. The spate of selling has sent the FTSE 100 back to levels last seen in 2012 with the likes of SBRY and TUI making all-time-lows yesterday while VOD was sent back to 2003 , RBS revisited lows not seen since the banking crisis in 2009 and RDSB took a visit to price levels last seen in 2009. In fact all of the oilers seems to be screaming something and its not just low oil price ( it was lower in 2016 without causing these kind of huge drops in O&G stock prices). It may well be that the O&G names are leading indicators of the reduction in economic activity and therefore the potential depth of recession ahead. As we are now firmly in bear territory, rallies may prove short lived and prone to being sold-off. After major dislocations such as the last few days, there are likely to be aftershocks and volatility is to be expected. With skillful trading, these can be opportunity-filled times but they require good execution and excellent discipline and risk management.
YTD the UK indices are down over 30% which compares with most European and Asian indices: what is striking is that the US indices have outperformed massively. Indeed, the NASDAQ has only dropped 8% YTD though is 26% from its ATH in Feb while the S&P 500 is down 15% YTD but 27% from its ATH. Similarly the DOW is down 17% YTD but off 28% from ATH .
This takes the DOW back to 2017 levels while the S&P 500 hasn’t retraced to the December 2018 lows and the NASDAQ hasn’t yet given back the 2019 gains and has another 25% to go before it returns to the Dec 2018 lows
Either the whole world has overreacted or the US has under-reacted especially in the mega tech stocks.
Sentiment has moved to a very extreme level of Fear which can be a signal that selling is overdone and some mean reversion is needed : The VIX is at an extreme last seen during the financial crisis of 2008 when the S&P had declined almost 40%,
As of yesterdays' close, only one FTSE 100 share's price was above it 200 daily moving average (DMA) ; that was POLY. Neither the 2012 sell-off nor the 2016 referendum sell-off nor the Oct-Dec 2018 correction resulted in a more bearish situation for the FTSE 100
(this plot is accessible via the market Sentiment Dashboard - click on the FTSE 100 gauge on the right to view)
Expanding the bearish sectors in the FTSE 100 reveals the clustering of Travel and Leisure, Oil and Gas, Banking and Mining stocks which were most hit in this meltdown
The FTSE 250 suffered similarly with only 13 shares above their 200 DMAs and only 2 above their 50MA: DJAN and GNS (at the start of 2020, 85% of the FTSE 250 names were above their 200DMAs)
(this plot is accessible via the market Sentiment Dashboard - click on the FTSE 125 gauge on the right to view)
Those sectors most affected were similar to the FTSE 100 with huge losses among the Oil and Gas stocks as PMO and TLW collapsed down 45 and 31 % respectively. RTN cratered by 32% , GOG by 31% and CINE by 24%. The losses in all these names YTD are enormous with PMO and TLW down 80-90% and CINE down 70%.
In the AIM losses again were concentrated in the Oil & Gas names with Travel & Leisure and Mining punished with many of them down over 20%. Of the 728 shares only 125 remain north of their 200 DMA and only 41 above the 50 DMA
(this plot is accessible via the market Sentiment Dashboard - click on the AIM All-Share gauge on the right to view)