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I am expecting the FTSE stock
market index to follow a similar trend to the Dow Jones, however the ongoing
currency crash means that the FTSE 'should' perform relatively more strongly
than the Dow as a consequence of the exchange rate movement. The in-depth
analysis of October 2008 - Stocks Bear Market Long-term Investing
Strategy that accurately forecast the 20% corrective rally (that
appears to have terminated) to be followed by a subsequent stocks bear market
low in Mid 2009, included was the strategy of scaling into the market at the
rate of 10% of funds allocated to stock market investing per each month that
the stock market was within 10% of its lows. The bear market rally following
the October low has been very weak, which suggests much lower trading than
the October low.
On balance the October analysis still stands and has been
reinforced by subsequent events that point towards a break of the October low
of 3665, how low will stocks go? A break of 3665 would trigger a trend
towards the previous 2000-2003 bear market low of 3277, with strong support
at 3,000. However that would be a worse case scenario.
The current technical
picture is that of a weak market, the rally could resume but it is too weak
to imply that any significant trend reversal is taking place hence the 3665
low is very likely to be breached. However I do still expect the 2009 low to
mark a significant low from which there will be an initial strong bounce into
2010 . Now the question is on where will the stock indices close by year end
? Well that will depend on where the low is !, as I expect at least a 35%
bounce from the lows to year end ,therefore if stocks put in a double bottom
at say 3,700 that would suggest an year end FTSE of 5,000. On the other hand
if the market crashes through the October lows amidst another panic towards
3,400 (appears probable) then the minimum 35% rally to year end would take
the market to 4,600 during December 2009. Which means that forecast for the
FTSE into December 2009 will be much clearer by mid 2009, as the below graph
illustrates with the most probable trend as follows:
FTSE 100 Index Mid
2009 Low 3400 - 70% Confidence;
End 2009 at 4,600 (During December 2009) - 70% Confidence
 
In Summary- The FTSE looks set
to break below the previous low, however I expect the FTSE to outperform
other indices with a minimum 35% move from the years low and finish Up on the
year, my best estimate at this time is for the FTSE to trade at 4,600 or
higher during December 2009. Also I am expecting that 2009 will mark the
start of a multi-year bull market that will eventually make 2008-2009's price
action appear as a mere minor blip, much as the 1987 crash appears on today's
price charts.
Two Point Stock
Market Investing Strategy for 2009.
a. 2009 will be great
time to scale into long-term investments at bargain basement prices. Even
if stocks fall towards the worse case scenario, that should be more than made
up for in subsequent years as great bull markets are born out of the most
pessimistic market conditions! My October strategy called for a 10% per month
investment of funds allocated for stock market investing on each month where
the index trades to below 10% from its low to date. The October article also
listed the key mega-trends to focus on such as Global
Warming, Peak Oil, Rise of Asian Middle class and Population growth as the
sectors to focus on that are expected to outperform the general indices over
the long-run.
b. 2009 Will be just
as great a year for trading the markets as was 2008, and in that respect
my new site walayatstreet.com will be aimed at
position trading, including hedge fund style trading tactics, the site will
aim to freely share my whole trading methodology honed over the past 20 years
AND to publicise trade points and ongoing analysis. The site will be going
live shortly, in the meantime the site lists my existing longer range
analysis and commentary.
Remember - STOCK MARKETS MOVE AHEAD OF
THE ECONOMIC DATA AND NEWS,
Therefore Focus on the Trend rather than the Bad News of which there will be
plenty during 2009 as global economies contract.
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is the editor of
MarketOracle.co.uk.and has over 20 years experience in trading and investing.
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