FTSE 100 about to get exciting

Investors have gone all defensive today, with utilities enjoying some time in the sun after an ugly sell-off in recent weeks. Traders are taking some money off the table elsewhere, however, given ongoing speculation around the new Trump administration.

Severn Trent and United Utilities are near the top of the FTSE 100 leaderboard, and not for the first time recently, as traders buy predictable earnings and generous dividends. They're down 16% and 14% respectively since the beginning of October, although neither could be called cheap on around 20 times forward earnings.

Bargain hunting saw broadcaster ITV, caterer Compass Group and £7 billion accountancy software giant Sage improve, although, again, only ITV might deserve the tag "bargain" on a price/earnings (PE) multiple of 10.

Unfortunately, even value investors are deserting a sector that's become something of a Mecca for them recently. Hearing that Barratt Developments is cutting prices at "a number" of sites in London, housebuilders turned tail and the FTSE 100 is down around 43 points at 6,749.

Persimmon is lower, and Taylor Wimpey, which has done well recently off a decent update, is off the pace. Balfour Beatty, Berkeley Group and Countrywide are among the worst-performing mid-caps.

Having broken its fall in February, Rolls-Royce has held up pretty well since the summer, although Wednesday was unconvincing. Despite chief executive Warren East's optimism that expectations for profit and free cash flow remain achievable, the outlook was hardly rosy.

At Rolls' latest Capital Markets day, it said demand for business aviation original equipment is "weakening further", mentioned "weaker demand" for industrial engines and service at the power systems division, "no sign of recovery" in offshore oil & gas markets, and "limited near-term upside" for developing civil nuclear opportunities.

Chart pattern emerging

Taking a wider view of the blue-chip index, we see an interesting chart pattern building, not dissimilar to the simple wedge pattern we saw develop during September.

Then, a series of higher lows over a three-month period following the post-referendum crash formed a solid uptrend.

Predicting the market's next move is harder than ever - just watch the trendAt the beginning of October, that uptrend converged with the downtrend from the April 2015 high. An inevitable chart breakout was worth over 200 points and a new record high.

Now, another uptrend from the same June low is converging with that same downtrend begun 18 months ago. Expect a similarly dramatic outcome, although which way the break goes is unclear. Given the weak bounces off the uptrend, the prognosis does not look particularly good.

However, it's been very obvious in recent sessions that predicting the market's next move is harder than ever. Just watch the trend.

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.