6th October 2011

UPDATE

More on the upside for FTSE?

Technical Fundamental

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More on the upside for FTSE?

FTSE 100 Index LIFFE Continuous 7500

WEEKLY CHART
The bears were excited and remain excited by the medium-term possibilities of the market: note well the possible bear H&S Top were the market to break beneath the Neckline at 4700

High 6995 f rom Dec 1999

7000

in association with

6796-6802 Prior Highs from 2007

6500
High 6086.50 5742.50 High

6000

5500
5504 Low

5000

UPDATE Technical Fundamental

50.0% 4757 Low 61.8%

4500

4000

3500
Low 3443

DAILY CHART
J A S O N D 2010 M A M J J A S O N D 2011 M A M J J A S O N D
Weekly Double T op 100 Index Dec 11 FTSE completion from the continuation chart 5504 Prior Low resistance frm June 5605.50

S O N

D 2009

M A M

5800 5700 5600 5500

But the short term chart has been difficult to finesse. We bears thought we might have had a completed bear continuation H&S two days ago when the market dipped by didnt close beneath the possible neckline at 4900. The last three days have put paid to that.

50.0% 5418 High

5400 5300 5200 5100

4898.50 Low

5000 4900

0.0% 4819.50 Low

4800 4700 4600 4500 4400

And the result has been a complicated sideways move since the beginning of August that lacks clarity and structure.
Short-term the market could go higher still. But only a break above 5605 would really impress the bulls.

15000 10000 5000

x10

Disclaimer

25

1 August

15

22

29

5 September

12

19

26

3 October

10

17

More on the upside for FTSE?

FUNDAMENTALS:
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Earlier this week the FTSE together with other global equity markets looked on the verge of a fresh bear leg, indeed analysts on Tuesday were already proclaiming one. As the Euro zone Sovereign debt crisis seemed to deepen and Euro zone leaders seemed to lack the wherewithal to tame it, the FTSE was squeezed between events in Europe and the weakening domestic economy. However, once again sentiment has changed. The FTSE and other equity markets are enjoying yet another short-covering rally that has seen the market move from a low of 4839.0 to a high today of 5209.0 a gain of almost 400 points in three days, Why has that happened and can it last? The catalyst for the rally was the news that Euro zone/EU finance ministers would seek to recapitalise their banks or at least ensure they had sufficient capital to survive a potential Greek debt default. At last markets felt the authorities were doing something practical other than just throwing good money after bad, but is it enough? The Eurozones banks as the situation stands would fair badly in the event of a Greek default and the effects would be felt globally via a new financial crisis. So bolstering their capital bases makes sense. But even if Greece wasnt on the verge of default, many Euro zone Banks would be in bad shape they have concealed the truth about their health throughout the original financial crisis/recession. Only this week Deutsche Bank, a bank long considered a blue chip global financial institution, announced it was scrapping its profit forecast.

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More on the upside for FTSE?

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In our view building up banks capital will not prevent an economic storm should Greece default and or leave the Euro zone. Such an event isnt simply a matter of starting to print Drachma again, it goes much deeper. The Euro would be a weakened currency since other troubled countries would be lined up as possible exit candidates. Additionally, businesses from all walks of economic life that deal with Greece, would need to restate contracts from Euros to Drachma and then hedge the risk. In short, leaving the Euro zone is for any country a messy business. A t the current time it is impossible to know what the exact impact on economic activity would be, but given the amount of political capital invested by Euro zone leaders to keep the Euro zone intact and prevent a Greek, Irish, Spanish and even Italian default, the Bloc would loose a large degree of credibility, not to mention wasted tax payers money. We think the current rally in the FTSE and elsewhere is a short-covering rally, with the FTSE receiving additional support today from the Bank of Englands decision to restart QE. Whatever policy makers do in the short term, it seems that enough damage has already been inflicted by the Euro zone sovereign debt crisis to insure the leading economies of the US, UK and Euro zone experience a recession. Once traders realise this the FTSE is likely to reverse. We think stocks remain heading for a Bear market.

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UPDATE Technical Fundamental

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