FTSE Fortunes – where do we go from here?

Let's put the spotlight on the FTSE 100. This is the most popular product amongst all spread betters, professional and retail alike.

The index of the UK's 100 highest capitalised (market) listed companies, (representing over 80% of the total capitalisation of all the companies on The London Stock Exchange) has an interesting history, and with all the uncertainty not just in the UK economy but economies globally, we need to step back and look at the market from a distance; putting everything into perspective.

Looking at the big picture, let's see what has happened since the FTSE 100 index was born back on January 3rd 1984 at a nice rounded value of 1000...

The chart above details the meteoric bull run from a value of 1000 in 1984 to over 2400 in 1987. That's a 140% climb in under 4 years! Then came the 1987 Stock Market Crash in October 1987. I remember this well (excuse me while I reminisce)...
I started as a ‘blue button' (glorified tea boy) on the stock exchange floor in December 1986, fresh out of school and keen as mustard. The problem was I hardly knew anything about the market (literally nothing). The market was booming, the Big Bang' had hit the city and trading companies were flourishing, as investors saw the market as a one way bet. As a result the market making company I had just joined had me off the ‘making tea duty' and trading in the pit on my own by March 1987. Naturally my strategy was one that everyone had used for the past few years i.e. geared to a rising market, so I soon learned just 7 months later that markets can actually go down and subsequently graduated from the ‘school of hard knocks'.

The 1987 crash took the FTSE 100 from over 2400 to 1600 in just a couple of days, wiping out over half the gain of the previous 4 years; then another 2 years to regain those losses. You can't argue that markets fall quicker than they rise!
The markets continued to rise steadily during the first half of the 1990s, with a few hiccups along the way naturally, mainly caused by speculators looking for another crash scenario. Then came the ‘Tech Boom' which propelled the market from 3000 in 1995 to 6950 at the end of 1999. Not only was it the end of 1999, but it was the end of the heavily inflated speculation of the impact of the Internet and its potential.
The market plummeted over the next 3 years; and for those Technical Analysis believers amongst you, the market retraced exactly 61.8% from the move of its origins at 1000 to its high of 6950....'The Golden ratio".

After another boom and banking crisis bust we saw a ‘double top' (hindsight I know) demonstrating the importance of the market holding that level of 3500/3700 a year ago.

Since those lows the market once again has shown extraordinary resilience and climbed back up to its current levels of 5700/5800. It has been tempting to short this 12 month rally, especially as it has felt that the economic stimulus provided by governments around the globe was artificial and probably delaying the inevitable; however the market has continued to grind higher.

Has this market moved higher on fake stimulus? Are we pulling out of recession? Whatever your thoughts and even if they are right, it does not mean the market will behave as it should. One thing is for sure, quiet stock markets tend to drift higher and its speculators as a whole rarely sell the top or buy the bottom (myself definitely included !). But when the market is short and the markets are quiet, we will go higher. And never has that been more true than the last 12 months. With the markets quiet running up to the UK election, the FTSE 100 Index is staying firm and may well go higher; however I have noticed that the sentiment is shifting from bearish to bullish; which probably means many of the short positions have been closed out and reversed suggesting we may be near the top again.

Either way is it worth keeping an eye on sentiment, because when we start seeing newspaper headline of ‘FTSE 100...set to reach 7000 by year end', watch out for a down move.
I remember a front page headline 12 months ago when the FTSE 100 was trading at 3700... ‘FTSE 100...heading for 2500'......