Robin Griffiths: sell FTSE at 5,400 ahead of September death cross

Last month Citywire highlighted the dangers of death crosses forming and Cazenove's technical strategist Robin Griffiths agrees, adding that the markets are likely to peak for the summer within the next week.

Griffiths writes:

The main trend on any chart is the 200 day moving average. When a price is above this the trend is up and it is called a bull market. If the price is below then it is called a bear. These signals are made stronger still if the slope of the moving averages is upwards or downwards.

Finally even clearer signals are given if the short-term moving averages, like the 25 or 50 day ones, cut through the 200 day line. A positive cut, in the upwards direction, is called a golden cross, and is obviously bullish.

A negative downwards cross is a dead cross – a clear indication of negative sentiment.

In the month of June most equity markets behaved poorly to such an extent that many indices crossed below their respective 200 day lines, and in most cases Dead Crosses also formed. Most of the mature western world was clearly in a bear market.

Keeping your powder dry

On this basis it is clearly going to go lower at some stage. Just to recap on our stance the secular top for these markets was in the year 2000. Most western indices have been in a macro downtrend for ten years and this is likely to persist.

This negative trend will bring these markets to levels that will be better than good value. It ought later to provide a buying opportunity in the bargain basement. We think it is important to preserve some buying power in liquid form in order to be able to take advantage of this opportunity when it arises.

Around the secular trends there are short-term cyclical bull and bear phases. On average these give three good years followed by one bad one. However in the presence of a secular downtrend the skew tends to go nearer the other way.

The bull periods are short and the bear corrections relatively long. The current rally phase started in March 2009, it was fantastically strong, but is now over. The fall in June was the breaking point.

Seasonal deviation