Sunday, December 01, 2013

Why the FTSE100 is lagging

From the chart below, you can see how the FTSE100 is lagging other main markets across the globe, and is still below its mid-May high. As a comparison, I've also shown the German DAX and the Russell 2000, which are continuing to trend upwards and are at all-time highs.

The reason for the FTSE lagging is clear. The index has a high proportion of mining and oil stocks, and as the charts below for silver, gold, and crude oil show, those commodities are currently trending in the opposite direction. Mining stocks in particular have had a difficult 2013, primarily as a result of the poor performance in the underlying commodity. 

As a result, they have generally been difficult to trade on the long side. Trying to pick a bottom in those stocks would have resulted in losses. To a degree, unless there is major news influencing an individual stock, those large cap stocks will tend to move in unison. Far better for these stocks (and the underlying commodity) to show signs of a new uptrend before opening new positions.

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