Should we expect a FTSE reversal before the year ends?

Recent price action may not be strong enough to call a definite turning point for the FTSE, but it could be a key turning point. What do the market indicators - and the mood on the high street - suggest?

Although the recent price action is not sufficient to call a definite turning point for the FTSE 100, nonetheless over the recent few weeks it has become quite compelling and so it might well turn out to be the key turning point. FTSE lost its upward momentum in mid-October, when it just exceeded the previous high for the year of 6134 set in April. From there, the activity was primarily sideways which remained the case until 23rd November when FTSE fell quite sharply. On Tuesday 28th November, the low was 6012, then on Wednesday it bounced. We will put a great deal of weight on what happens next. If, in due course, FTSE turns over without first making a new high, then we will expect a continued fall leading to a test of the low set on 13th June of 5467.

Two issues ago on 2nd November, we published a chart showing FTSE 100 compared to the Informed Buyers' Index, this is published again, it implies that throughout the June rally Informed Buyers (eg, institution investors such as pension funds, etc.) were selling into the rally. If that is correct, then FTSE's recent weakness should transform into a significant sell-off.

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