With hindsight, I think I got a bit carried away in my last post, when I predicted a 15% fall. Sharp drop-offs like this one tend to be short-lived affairs and I suspect that the 5% or so drop we have seen already may be it. Larger falls tend to start more gradually and I haven’t really been able to detect a good reason for this one either. Yes, the Fed tapered QE again at the end of January causing money to be withdrawn from some emerging markets, but there is no real reason why that should affect the US or the UK. It all just seems to be a bout of the collywobbles over the recovery not being as robust as everyone hoped. That said, a spike minimum is not out of the question: we could see the FTSE dip back to 6440-6400 before rebounding, but that is just a possibility.
An interesting fact to note though, is that FTSE futures prices are still discounted from the current index value which suggests that dealers are not expecting the bull run we are in to last. Normally, in a bull market, futures prices are higher than the index in anticipation of further gains, but, for as long as I can remember now, that has not been the case, so it seems that, deep down at least, the market knows this rally is built on shaky foundations. That is not to say though, that we cannot continue significantly higher before reality hits.
