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OPINION

Janus looks back on January

Janus looks back on January
February 10, 2017
Janus looks back on January

In January President Trump took up in the White House and all sorts of people got cross, decided to demonstrate, and looked in shocked horror. The other half believed in the promise of 'loadsa money' (Harry Enfield- style) and that real change was in the air. Not surprisingly many charts reflect these two visions, not only in the US but globally; we focus on British markets.

Starting with the FTSE 100 which, as we are repeatedly reminded, contains many export-oriented companies that ought to benefit from a weak pound. Possibly because of this, January set a new record high at 7354, at which point the move fizzled out drifting to close just below where it had started this year. Known as a shooting star candle, a version of which we saw in October, and can only happen at the top of a proper bull run - which indeed was the case since February. Its opposite, which can only happen at market bottoms, is called a hammer and featured in January and February 2016 with a variation of this in June.

These candles are important, but need other features to back up the warning signs they are flashing - and the more the merrier and termed a confluence of technical signals. The record high aligns with a potential broadening top pattern since mid-2013 and also lies just above 1999's high at 6950. It is therefore a potential extension above very long-term resistance, something we've already seen in 2015. Therefore there is a chance that the next two months will see prices slip and reverse much of December's strong rally.

 

 

By contrast, the monthly candle of the yield on 10-year gilts is not important. It does, however, underline that they've been in a tight range and holding pattern for three consecutive months; move along as there's nothing to see here. What is striking, though, is that the consolidation takes place just under long-term trend-line resistance. We expect this to hold, and another two months' worth of 1.20 to 1.50 per cents in store.

 

  

Cable also has three unremarkable monthly candles, again in a relatively tight range, well under long-term trend-line resistance. The salient feature here is that we are trading at some of the lowest ever levels. The risk of further cautious downside probes cannot be ruled out - but this is dirt cheap!

 

 

Euro-sterling's January candle is also a variation on a shooting star, but follows October's far more dramatic reversal top. It echoes July and August's candles and underlines the fact that this currency pair has struggled to hold clearly above £0.8400. As all of this has been happening at the top edge of a trend channel and close to 2008's record high at £0.9800 we feel that an important interim top is in the making. A monthly close below £0.8400 towards the end of March should tip the balance so that the euro will weaken against the pound later this year.