Here Is The Only FTSE Chart That Matters

QT (quantitative tightening) or reverse QE (quantitative easing) is coming, so we are told, and interest rates are going to rise. This should not be a nice cocktail for the stock market, especially the U.S. market priced at the pinnacle of its companies at bubble-style valuations.

The U.K.’s laggard FTSE, meanwhile, has clawed back to pre-Russia/Ukraine war levels while the U.S. market has thrashed around and is still clearly in a bear market. (A bear market is when the tendency is down for a market, not when it has collapsed as the less than clue-full now use the term to portray.)

The call for the U.K. market is the same as the U.S. market because the U.S. dictates the direction of most international markets when it makes a big move like a crash. The call: will the markets crash with tightening or will they simply sideways trade in a “buy the dip” utopia?

Here is the FTSE:

I’ve added some technical analysis and you can see you don’t need a Ph.D. to note how the U.K. market pans out.

So in no-brainer trade mode you can see that if the index was to escape this long-term trend on the upside it could travel and likely would travel far. However, something great would need to happen or at least something systemic. Meanwhile you can comfortably buy into corrections and gobble up aftermaths of crashes if something awful strikes.

It’s dull but profitable.

Meanwhile compared to the U.S. markets the U.K. is painfully cheap so if the U.S. takes a stumble, it is likely to just push it down to the bottom of its long-term sideways trend, and after the dust settled in the U.S. it would be time to buy up the U.K. market for another sequence of rise back to its channel top.

While interest rates may rise, liquidity is unlikely to be shut off. If it is, the coming few years will be of deep depression rather than steep inflation. Governments will try and navigate a middle way but in the end inflation is the cure to their policies of huge deficits and it simple reflects the fact we are all poorer after the Covid crisis and inflation just reflects that reality, because currency debasement was the only way to bring a locked-down economy to the other side of the pandemic. More of the same debasement is needed to rebalance the resulting mess, and “austerity” with a liquidity squeeze is not going to be the top choice going forwards.

So as the market needs to rise by the rate of inflation to actually represent a real rise at all, if inflation is the road ahead as I think it is, then shares will at the very least stay supported in nominal terms by the value of money falling.

So selling the rally and buying the dip, or rotating thorough what is going in and out of favor, will be the way to play the U.K. markets in the years ahead.