UK FTSE 100 (.FTSE) threats to the global economy are brewing

UK FTSE 100 (.FTSE) threats to the global economy are brewing

UK FTSE 100 (.FTSE) threats to the global economy are brewing

It is a tough time to be an investor right now. Even a quick glance at the business pages of any newspaper will tell you that threats to the global economy are brewing. 

Donald Trump’s trade tariffs have sparked a full-blown trade war with China. Europe is struggling with an economic downturn, which could evolve into a continent-wide recession. Across Africa and South America, political and economic troubles are growing, undermining stability, and the UK is staring down the barrel of a no-deal Brexit at the end of October.

Considering all of the above, it is no surprise that the FTSE 100 has slumped during the past few weeks. Since the end of July, the UK’s leading stock index is down by around 5%. Its year-to-date performance is substantially worse compared to other international indexes. For example, compared to the S&P 500, the FTSE 100 has underperformed by around 10% this year. 

I believe the best course of action for investors in this environment is to keep calm and keep buying the FTSE 100. 

Look to the long term

While the FTSE 100 is a UK-based index, its returns are more connected to global growth. More than 70% of FTSE 100 companies’ profits come from outside the UK. So, investing in the index is more of an investment in the global economy than the UK.

And while the shadow of the US-China trade war is hanging over the global economy today, I do not think it is unreasonable to say that five or 10 years from now the world economy will be bigger than it is now. 

Indeed, during the past 10 years, the global economy has grown at an average annual rate of between 2.5% and 4.4%, that’s despite the overhang of the global financial crisis. 

If the economy can grow at this pace while shaking off such a severe economic depression, then I do not think it is unreasonable to assume that the world economy will continue to grow at a steady rate over the next 10 years as the trade war rumbles on.

Attractive return 

So, what sort of performance should investors expect over the next 10 years from the FTSE 100?

Well, over the past decade, the index has produced an average annual return for investors in the region of 8%, that’s including dividends and capital growth. We could see the same sort of returns over the next decade. 

If we assume that company earnings grow in line with global GDP growth — 2.5% per annum based on historical trends — and the FTSE 100 dividend yield of 4.7% remains unchanged, there’s a strong argument to be made that the index could provide a total return for investors of around 7.2% per annum going forward. This is only a rough, back of the envelope calculation, but I think its shows clearly why the FTSE 100 remains an excellent investment even after recent declines. 

Technical Indicators

Overall, the bias in prices is: Downwards.

The projected upper bound is: 7,422.09.

The projected lower bound is: 7,089.29.

The projected closing price is: 7,255.69.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 26 white candles and 24 black candles for a net of 2 white candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 24.2659. This is not an overbought or oversold reading. The last signal was a buy 0 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 37.87. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 2 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -82. This is not a topping or bottoming area. The last signal was a buy 0 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 5 period(s) ago.

Rex Takasugi – TD Profile

FTSE 100 INDEX closed down -32.050 at 7,253.850. Volume was 15% above average (neutral) and Bollinger Bands were 93% wider than normal.

Open     High      Low     Close     Volume___
7,285.9007,297.2807,237.1307,253.850 819,383,680
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 7,404.61 7,438.90 7,188.33
Volatility: 25 14 15
Volume: 908,789,056 710,133,440 740,177,856

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FTSE 100 INDEX is currently 0.9% above its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of .FTSE at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .FTSE and have had this outlook for the last 5 periods.

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