This type of trading activity is generally an indication that we are about to break out from the current range but nobody is too sure which way.
As Simon Denham of recently commented, ?On the face of it, valuations appear generous with good p/e levels and solid yields versus Treasury and cash rates. On the other hand the continuing, and seemingly accelerating, rate of decline of the Global economy leaves many investors wary of taking the plunge.?
There is also the added theory that yields on corporate bonds are now so generous, and also afford investors greater protection than straight equities, that they are affecting the possible attraction for stock.
The FTSE 100 made a series of attempts to trade below the 4000 marker at the end of last year and the start of 2009 but there is a definite support between 4000 and 4030. We will probably need something new to actually break lower.
One of the major problems for any rally is that the banks seem to be on a one way trip to oblivion. Without a banking system able, or willing, to lend at some point in the future, the chances for solid growth once the recession has run its course are getting slimmer and slimmer.
Nationalisation of the banking system sounds attractive at the moment. However, State control is never efficient and without the incentive to perform (sorry, but this means bonuses and dividends) banks may retreat into a safety first mentality. That could stunt growth for years to come.
Trying to find some sense in any market activity is getting quite difficult with almost random direction being the apparent order of the day. The most successful traders at the moment seem to be those who are fastest on their feet.
The idea that you should invest for the ?long term? seems almost laughable especially when you analyse the performance of equities since the current administration came to power. The major UK indices have not moved for 11 years and this is with the continual removal of the weak stocks which are replaced with the strong/new.
If you were lucky your portfolio might be worth the same as ten years ago but with transaction costs etc this would be unlikely. So how long is a long term investment? Daily activity on the markets continues apace with solid trading levels every day. The varied market swings seem almost designed for contrarian day trading as every big move seems to have a significant reversal almost immediately.
Unfortunately every factor seems to be working against the UK at the moment. The house of cards built by the UK Government is in danger of collapsing irreparably. Not that I am suggesting the Conservatives or Liberals would have done any better during the same period.
The hope that a weak pound will somehow help pull the UK out of the situation seems very old fashioned. We have to have a serious manufacturing base for this to be the case. With such a small percentage of our economy actually based on export manufacturing, and what we have still having to survive the global downturn, any hope of a solid recovery seems some way off.
So what to do if the markets will not go up and will not go down? Well you could trade the ranges. I have been trading them fairly well over the last couple of months but I have been doing so with small stakes. Even with small stakes there have been unpleasant moments when the markets have spiked out in one direction.
The problem with trading ranges is the markets only play ball for so long. I like . It's quick, easy and tax free*. I say ?easy?, I mean it is easy to place spread bets, it is not easy to make a consistent profit. Despite the benefits the one problem the text books never mention is that when you start trading well, you get over confident and the markets give you a slap. The slap always comes after you have increased your stakes. Before you know it, your profits and then some have gone.
For the time being I'm going to stick to trading the ranges. I will do my best to stick with small stakes. However at some point the markets will turn. They will breakout. I just hope I will be on the right side of the bet this time.
One last warning though, spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary.
Simply, but with a few exceptions, the FTSE 100 is an index composed of the 100 largest companies listed on the London Stock Exchange (LSE). These are often referred to as blue chip companies, and the index is seen traditionally as a good indication of the performance of major companies listed in the UK.
The FTSE 100 gets its name from FTSE the company which calculates the index, and the fact that it contains 100 companies. FTSE is actually FTSE Group, and is 50/50 owned by the Financial Times and the London Stock Exchange (hence FTSE - FT and SE). Although the FTSE 100 is the most famous index the company produces, FTSE Group also calculates over 100,000 other indices, covering markets around the world, every day.
In the UK market, the other FTSE UK indices include the FTSE 250 (the next 250 largest companies after the FTSE 100) and the FTSE SmallCap (the companies smaller than those). The FTSE 100 and FTSE 250 together make up the FTSE 350; add in the FTSE SmallCap and you get the FTSE All-Share.
The FTSE 100 was launched on 3 January 1984 and had a start value of 1,000.0. Since then the make-up of the index has changed almost beyond recognition - mergers, takeovers and disappearing companies have all meant the index only has 21 of the original constituents left in it underlining the indexs purpose of acting as a barometer of market activity. A fair number of constituents have changed their names too remember Midland Bank (HSBC), Commercial Union Assurance (Aviva), Reckitt & Colman (Reckitt Benckiser) and British Gas (now BG Group and Centrica).
Of course, the index must be changed to make sure it still reflects the top 100 companies listed on the LSE if it wasnt, we would still have an index containing companies such as Trafalgar House and Rowntree Mackintosh. These changes happen once a quarter, although if there are takeovers or mergers in between these times affecting companies in the FTSE 100, the index will be changed accordingly. The process for reviewing the index is straightforward all companies listed on the LSE and eligible for the FTSE UK indices are ranked in order of their size, or market capitalisation (calculated by multiplying the number of issued shares of a company and the current share price).
A committee made up of independent market experts meets in March, June, September and December and considers which companies should be allowed into the FTSE 100. Simply, if a company is in the FTSE 250 and climbs into the top 90 companies, it can enter the FTSE 100. If a FTSE 100 company falls to 111th position or below in the rankings, it will fall into the FTSE 250. So it is not just a case of picking the largest 100 companies and drawing a line a banding system is in place.
These bands exist so there are not too many changes at each review the index needs to be kept fairly stable for investors not to have excessive and expensive changes to make to their portfolios. On some occasions, no changes to the FTSE 100 have been made at a review, but during the dot com boom, market activity meant that large numbers of companies could enter and leave the index when changes were made. The changes made at each quarterly review are often covered by market reporters in the business sections of the national press.
The figure seen on the evening news is, in fact, the closing value of the FTSE 100. The index is actually calculated every 15 seconds on every week day (excluding UK public holidays), from 8 in the morning (market opening) until 4.30 in the afternoon (market close).
The level of the FTSE 100 affects most people in the UK even if they dont directly invest for themselves: as pension fund holders whose investments are probably invested in UK equities, how well the index is performing directly affects the return they will receive.
The FTSE 100 is also a pretty good reflection of economic and international events often it will tumble in response to markets falling around the world, for example the recent dip which occurred when the markets fell in China. The largest one-day percentage fall was on 20 October 1987 at 12.22%; this was the day following Black Monday. The largest one-day points fall was on September 11, 2001 when the index fell by 287.7 points.
There has only been one day when the FTSE 100 was not calculated Friday 16 October 1987, the day following the hurricane that brought chaos to London and the Southern half of England. The index did not operate as not enough market practitioners made it in to work to open share prices on the London Stock Exchange trading system!
Both Peter Jones & John Mce are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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