How FTSE 100 was Trump(ed)

Oh dear, this does not look good. I've been keeping an eye on the FTSE 100 for the past few months, more closely since September when an interesting chart pattern formed. An uptrend from the June low was converging on the downtrend from the April 2015 high. The outcome was historic, but brief, and things have just taken a turn for the worse.

A breakout above the downtrend at the beginning of last month added almost 200 points in quick time. A week after an initial attempt at a new record high failed by fractions of a point, the blue chip index hit an all-time best at 7,129.83. The fun, however, ended there.

Nose-bleed stockmarket valuations, growth concerns, higher bond yields, unpredictable oil markets, speculation around monetary stimulus and interest rates, Brexit, and a ridiculous US presidential election all spooked investors.

On several occasions buyers did dive in at the April 2015 downtrend, which had now become technical support, but momentum had already dissolved significantly, and the growing threat of a Trump victory next week was the straw which broke the camel's back.

An ABC News/Washington Post tracking poll put Trump, possibly the most divisive presidential candidate ever, 1% ahead of Clinton at 46% to 45%. That's the first time he's led the Democrats since May.

Of course, the poll could be wrong. It was only a survey of "likely" voters and there is a 3% margin of error. It's also worth remembering that over 23 million Americans have already cast their vote, so have missed the furore around Clinton's latest email investigation.

Jim Reid, chief strategist at Deutsche Bank, summed up the mood neatly this morning: "The chatter in the market yesterday was that although Clinton was still a clear favourite, the probabilities of her winning seemed to be similar to that of the UK staying in the EU just prior to June's referendum. So once bitten twice shy for many."

And that's why buyers disappeared Tuesday (and Wednesday), sending the FTSE through support and closing the session below the downtrend. And that's a big deal.

"It's pretty significant I think," chartist Alistair Strang told me last night. "That trend today was at 6,927. As a result, anything near-term below 6,903 suggests 6,858 with secondary 6,771 points.

"But worse, as I'd feared, it takes the market firmly into the 6,475 region."

While I'm still optimistic on market prospects over the next few months, I wouldn't entirely rule out a visit to that low number, currently around the 200-day moving average, especially if Trump wins.

As my colleague, head of investment Rebecca O'Keeffe, points out today: "A Hillary Clinton victory is perceived as bringing stability to the market, whereas the uncertainty around a Donald Trump victory is likely to see stocks fall in the short term, as investors try to work out which sectors and industries might benefit and which will fall."

We'll have more on that this weekend.

Before then, we'll get the Federal Reserve's lastest decision on US interest rates - a move tonight would be madness, and will not happen. UK interest rates will not move tomorrow, either, but the quarterly inflation report should be more interesting - watch for upward revisions to forecasts for both growth and inflation.

With all the talk of a correction right now I think a good clearout would be therapeutic for markets - they often are. Lower shares prices, given current threats - remember the Fed is widely tipped to raise rates next month - and modest earnings growth, would both satisfy the bears and throw up fresh opportunities for wounded bulls.

While the route to year-end is peppered with potential banana skins, there is a wall of money that needs a home. If the election turns out OK - Hilary has gotta win hasn't she? - the odds of a traditional Santa rally still seem pretty good.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.