The sorry saga of Britain's extrication from the EU is producing enough grief that the currency is at multi-month lows. This gloom may be well-founded but may also not be, so it is possible that this one-way slide presents a long-term opportunity to buy the £. Whatever the longer-term outlook, there are now some daily-scale bottom extensions to show. They are against the Swiss Franc and Yen:
These are not sufficient reason to buy the £ 'at market' but we are stalking it and looking for any other confirmatory reasons to buy - these typically would be either some obvious price trend reversal or perhaps a similar signal involving the $ or the Euro. You may see something else that suits your decision-making process, and if so we would advise acting on it. Meanwhile we watch.
The main £-denominated assets are of course stocks, bonds and real estate. The FTSE is the main equity index and it has been repeatedly boosted by weakness in the £ because it contains a lot of companies whose main business is outside the UK, so they look cheap as the currency falls. This has not happened as much lately, so it seems probable that this old argument has persuaded all those who are amenable to it. Any bounce in the £ from here would probably mean quite a hard drop in the FTSE, so we are watching this too for any sign that we should sell it - we still think that stocks in general are trading in ranges and so are looking to sell most indices in Europe, the US and Japan (see below).
UK government bonds (Gilts) are also on the move, along with other bond markets and there is an opportunity to sell them right here (see second chart below). Gilt futures broke below a compression 8 days ago and have now bounced back up underneath it. This is always a good moment to sell, as these 'return movements' are a regular feature of all feedback-driven systems such as markets. As described more extensively in our userguides, these moments present a low-risk trading opportunity. Sell here, risking a move back up through the compressed area:
Real estate is very expensive in London, less so in many other parts of the UK. We will attempt an analysis in the next few weeks to see if there is any opportunity.
In the US, we are starting to see some signs of tiredness in the recent equity rally. These come in the form of top extensions in two of the sector instruments - insurance and pharmaceuticals. There are many more that have not produced signals but we don't expect to see more than a handful of extensions at the top of a trading range. Get ready to sell some US equity index futures or perhaps even start now - there is a medium-sized turn due tomorrow (see schedule) that could mark the turning point. Such turns are accurate +or- a day:
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com