FTSE 100 overbought, FTSE AIM All Share oversold

I have had a very disappointing performance of my shares since the start of the tax year. My shares are down 8.7%, compared to a positive return of 1.8% for the All-Share. The All-Share is heavily weighted to the Footsie (the correlation is very high). The Footsie is up 2.7%, whilst the FTSE 250 is down 2.4%.The impression I’m getting is that many people are having a bad time with their small caps. So, if you are, you are not alone. If not, then many congradulations to you! It could be that we’re seeing a “flight to safety/quality” (or, as one analyst called it, the “flight from shite”). The pervading feeling seems to be that we’ve hit the peak, and are now heading for a long overdue correction, or possibly bear market.I pulled some charts from Stockopedia (below) for the UKX (FTSE 100) and AXX (FTSE AIM All Share). Pay attention to the upper panel, which shows the RSI. They are both at opposite ends, with the UKX being overbought (which is bearish for those that subscribe to momentum swings), and the AXX at the other extreme, being oversold (a bullish signal). Other indices, such as the T1X (FTSE Techmark Focus) and MCX (FTSE 250) have their RSI in the normal range, and are not giving off any particular signal.So, if you own many small-cap shares and see that your portfolio has gone down across the board, then what you are seeing is fairly consistent with how the market has been behaving recently. Today, the FTSE 100 is showing 65 advancers, and 35 decliners. The AXX is showing 237 advancers, and 384 decliners.For those that believe in trend reversals based on RSI, then now would be the time to dump the blue chips and invest in AIM shares.On the other hand, some might argue that the pattern we are currently observing is merely consistent with a market top, where the market is contracting in breadth, with the weak/poor quality shares are going down first; and, given their relatively risky nature, worse is yet to come.We will know in hindsight.The market does seem in an unforgiving mood – I noticed that when Balfour Beatty issued its trading update earlier this month.FTSE 100 chart:



FTSE AIM All Share:



Update 14-May-2014: The 52 week high for the AXX is 899.67. At the opening, it was 808.78. That is almost exactly 10%, and may represent a “correction” in the market. Note that, according to Stockopedia, the AXX has a trailing PE of 20.4, and a forecast of 15.1. The UKX has a trailing PE of 18.5, and a forecast of 15.5. Forecast growth for both indices look rather too optimistic (at 21.7% and  12.6%, respectively), so I have some scepticism as to whether the forward PEs are credible.

About mcturra2000

Computer programmer living in Scotland.
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