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Wealth manager warns FTSE could fall 'below 3,420'

After 10 months of sideways trading on the FTSE 100, equity investors should be bracing themselves for a likely FTSE break out below 4,790 points in the second half of the year, according to wealth manager Full Circle Asset Management.

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by Matthew Goodburn on Aug 11, 2010 at 14:49

Equity investors should be bracing themselves for the FTSE 100 to drop below 4,790 points in the second half of the year, according to Full Circle Asset Management.

On a longer term basis, the wealth management firm argues that the 17 year primary bull market which ended in 2000 has ushered in a bearish long-term trend, which will see the FTSE lose almost 2,000 points before it turns again.

At the time of writing the FTSE stands at 5,269, down 2% on a day dominated by downbeat economic news.

FTSE could fall below 3,420

The group says current prevailing high volatility levels on the Vix - the market volatility index - also mirror those in the year leading up to the market collapse in August 2008.

It expects that trend to extend from here down to below 3,420, and warns: 'Such a move will rip open the FTSE's underbelly.'

While the FTSE's short term trend has been positive with nine consecutive up days up to last week Full Circle says momentum has now stalled, and the 30-week average has turned 'neutral.'

Tough second half

From here, it is predicting the most likely move is a close below 5,246, and then 'progressive weakness' from there, punctuated by 'modest bounces.'

In its , on 5 August, it warned: 'The second half of 2010 looks very suspect including as it will the public sector spending cuts and higher taxes.'

The note cites two Lords - Wolfson of Next, and Harris of Carpetright - warning on a poor retail outlook in the second half and falling volumes on the UK stock market in July, despite the index rising last month.

'House prices are fading and recent better than expected corporate earnings are unlikely to be sustained. Households are threatened by job losses, insufficient savings and deteriorating pension resources; so households are driven to save and not spend.'

It added: 'The private sector will be unable to compensate the economy for its loss of public sector spending.

'Tiny' chance of long-term bull market

Full Circle also noted that while in June the US and UK stock markets fell before rising again in July, volumes were 12% down on June.

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16 comments so far. Why not have your say?

This company are always predicting doom and gloom and have missed all the obvious up moves over the last eighteen months or so, i.e. equities, corporate bonds, PIBS and the recovery of the commercial property sector. They have so little faith in their own ability, that they have recently started putting their clients money into absolute return funds run by other investment houses. Their performance of late is absolutely dire and would therefore suggest taking their views with a pinch of salt

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One Would Almost Be Cynical And Suggest Do THey Offer These News Stories To Send Jittery Equity Investors To Sell To THen Buy At A Discount Yes News Is Grim But Surely Its Been Factired Inn Or The Index Would Have Ben 6000.

I remember reading 7000 before xmas 2010 DYOR and stick with it the reason volumes are down i because people like me were borrowing money to play the stock market that money is no longer avilable.

I have been buyibg today and will buy on further weakness.

3420 thats lower than when the twin towers was getting bombed not to mention companies have been reducing overheads for over a year these reduced costs will surely be reflected in the price of the stocks over the next year.

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Why publish your views, particularly negative views, unless of course you want to influence the market.

I would repeat- the British economy is still a great manufacturing economy. We simply import too much at the retail end.

A retail downturn is good. House price stagnation is good. Immigration figures down is good.

The retail lords of the ftse will be replaced by better performers.

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Continuing with the historical context and placing comments in a purely objective and professional sense, please be advised that -

"When they were up they were up,

And when they were down they were down,

And when they were half way up they were neither up nor down".

So now we know!

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""Such a move will rip open the FTSE's underbelly."" - very difficult to take seriously the opinions of people that use such melodramatic prose.

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I'm in receipt of another scare mail earlier this year that predicted the FTSE would crash below 3,500 by June 11th. So when I checked on June 11th it clearly hadn't.

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Full Circle?

In the same way as other "experts" like them, they'll eventually disappear up their own arse.

I agree with Michael Atherton basically, and anyway we've been to the 3400's before and bounced back. Always have done.

Simplistically,is it not equities (ie business) that makes the whole world go round, and for alternatives, what do they suggest ordinary investors like me to do?

Cash ISA's ? Deposit accounts? Spread betting? Bonds? Nah!!

One of my personal holdings is in good old boring National Grid, currently providing a dividend return approaching 8%, increasing 8% year on year through to 2012 and on course, hopefully , back to £6+ following the drop caused by the recent rights issue.

I'm sticking with equities, you lot do as you wish.

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Terence,old boy....I think they have almost certainly disappeared up their fundamental orifice already, in view of the s--t they are coming out with.

They have no more idea about where the markets are going than any of the other 'experts' bearish or bullish.

Personally,I am circa 80% invested and sitting on 20% cash,waiting for the markets to retreat a bit more before lobbing in a few more spondulics.

A retreat I can see,but a crash to below 3420...no.

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I agree with Terence Brown I have Nat Grid, HMV (12%yield well covered) Aviva, PZ Cussons etc and other Large Cap High yielders mixed about 50% with Aim Miners and Oil Shares Rockhopper ,Desire, Falklands oil etc. It has worked very well for me. Whenever I have invested in managed funds etc I have lost out. I prefer to pick my own stocks . If I am going to lose money I prefer to do it myself thank you rather than pay these clowns do it for me.

My only interest in managed funds would be in specialized Russian, South American & Chinese Funds. Where it is expensive and difficult to trade and

hopefully they have done the research

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yes Doomsday was june11 according to the sales blurb peddling Fleet street letter... shit creek letter- still reading thebrown stuff peedled here is FOC!!!

Suppose they get subscriptions or they wouldnt advertise.

Agree with solid long term good yielders& income funds with verifiable long term track records.

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Neither a Bull nor a Bear - just an investor keeping an eye for some bargains - got aviva national grid is looking likely next!

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Ftse 6930 as at 31/12/1999.

Ftse 5245 as at 11/08/2010.

Yeah, buy and hold over the last 10 years really worked!

Factor in the medium term deflationary (yes deflationary!) outlook - (public sector cuts/over indebted households/over indebted banks/falling house prices) and why wouldn't one agree with Full Circle's prognosis?

For two years before the US property crash, everyone was calling Peter Schiff a crank. He was right, he was just too early in his predictions.

The number of responses rubbishing Full Circle's opinion supports the contrarian view. Take heed.

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Good response from Terence Brown

I also hold Nat Grid & Aviva also Edin Investment trust & Perpetual & Income with latter 5.2% & 4% divis

For interest a member of our share club forecast 3,200 ftse this year quoting the VIX fear index.

Who knows- just hang on in there- hopefully in 2 years we will be back up again and more.

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How dramatic. And the income alternative to equities at the moment is what? A pull back of a few hundred points, perhaps - but 2000 point crash? Calm down everyone, the sky isn't caving in.

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Re Anthony O'Grady; Sir, whilst we are all aware of the state of the nation's finances, I question the certainty of you realising your deflationary view, given the high level of QE of recent years. We have already seen the world's response to the strong government measures/budget etc. Sterling appreciation. Considering the global growth led by the emerging economies and the currency only just off it's lows - I suggest that british assets present medium and long term opportunity. Furthermore I suggest that your example to reject the benefits of "buy and hold" is rather biased considering you have chosen the all time high as a starting point. Hardly of statistical value. Change the start of your data range from 9y 8m and 12days to 5, 15 or 20 years ago, factor in income (and/or income reinvestment) and I suggest a different picture is painted.

Regards

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D.LAING

Oct 01, 2010 at 17:20

ok no one really knows but what are they saying now on 1st october?

and what hppens after it hits 3420 does it go back up?

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