Share prices have been falling for a while. The short-tem and intermediate term trends are to the downside. How much lower can share prices go? Have they fallen far enough? To answer this question on has to look at the longer term charts, i.e. weekly and monthly.
While looking at the daily chart of the FTSE 100, it appears to be oversold. RSI is below 30 and stochastic is below 20. Although with have oversold signals on the chart, there are no reversal signals on it. Hence, now is not the time to buy, especially if you are buying for the short-term.
On the weekly chart we see that the FTSE 100 is approaching/sitting on support at 5500. However if we look at the indicators, RSI is around 35 and still heading down. This signifies selling is winning the battle. A look at the MACD indicator shows that the faster moving average has just crossed the slower on moving down and that the Histogram has crossed below zero. This means there is more downside.
On the monthly chart, we see a bearish candle and the Index has closed below the 50 day moving average for the first time since 2004. The left side of chart show that something similar happened in 2001. All three indicators on the monthly chart are showing sell signals.
Even though the daily chart is showing signs of the market being oversold, the weekly and monthly charts are showing that there is still some downside.
Let’s remember the indicators and charts are there to show us a picture of what is currently happening in the market, they do not provide a 100% assurance of what would happen. The unforeseen such as government intervention, central bank cash injections etc, can still happen and can cause the market to act contrary to the signals generated by the charts. Let’s also note that even if a market is in a downtrend, you can still have the occasional days or weeks where the market will go up before resuming it’s downtrend. Lastly, even when the overall market is in a downtrend, there would still be some sectors or companies that will experience and uptrend within the overall downtrend. There will also be opportunities for short-selling.
My analysis is that until there is evidence to the contrary, there is still some downside in this market, even though you need to be cautious as the index might make one more attempt to rally above the 50 day MA on the monthly chart. However there is money to be made, irrespective of whether the market is going up or down.
While looking at the daily chart of the FTSE 100, it appears to be oversold. RSI is below 30 and stochastic is below 20. Although with have oversold signals on the chart, there are no reversal signals on it. Hence, now is not the time to buy, especially if you are buying for the short-term.
On the weekly chart we see that the FTSE 100 is approaching/sitting on support at 5500. However if we look at the indicators, RSI is around 35 and still heading down. This signifies selling is winning the battle. A look at the MACD indicator shows that the faster moving average has just crossed the slower on moving down and that the Histogram has crossed below zero. This means there is more downside.
On the monthly chart, we see a bearish candle and the Index has closed below the 50 day moving average for the first time since 2004. The left side of chart show that something similar happened in 2001. All three indicators on the monthly chart are showing sell signals.
Even though the daily chart is showing signs of the market being oversold, the weekly and monthly charts are showing that there is still some downside.
Let’s remember the indicators and charts are there to show us a picture of what is currently happening in the market, they do not provide a 100% assurance of what would happen. The unforeseen such as government intervention, central bank cash injections etc, can still happen and can cause the market to act contrary to the signals generated by the charts. Let’s also note that even if a market is in a downtrend, you can still have the occasional days or weeks where the market will go up before resuming it’s downtrend. Lastly, even when the overall market is in a downtrend, there would still be some sectors or companies that will experience and uptrend within the overall downtrend. There will also be opportunities for short-selling.
My analysis is that until there is evidence to the contrary, there is still some downside in this market, even though you need to be cautious as the index might make one more attempt to rally above the 50 day MA on the monthly chart. However there is money to be made, irrespective of whether the market is going up or down.
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