#$fxb

Here are some of the most noteworthy trendline developments across the markets for Wednesday, December 4, 2019.

UK’s $FTSE-100 Index Testing Post-2009 Up Trendline

British Pound ETF $FXB Testing Post-2014 Down Trendline

Value Line Geometric Composite $VALUG Testing Broken Post-2018 Down Trendline…Again

Biotech Index $BTK Testing Post-2018 Down Trendline

Industrial SPDR $XLI Testing Broken Post-2018 Down Trendline

If you’d like to see these charts as they come out in real-time, follow us on Twitter and StockTwits. And if you’re interested in the daily “all-access” version of all our charts and research, please check out our site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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The Russian stock market is threatening to break down below a critical chart level.

No, this post has nothing to do with politics, diplomacy or international relations. In fact, you will not see the words hack, tamper, treason – or covfefe, for that matter -- in this post (at least after this sentence). Nor do you need to worry about any “fake news” here. We are only concerned about markets and truth. And in the markets, as they say, “price is truth”. And sometimes the truth hurts. That very well may be the case right now in Russian stocks.

After topping out in 2011, the Russian stock market was a global laughingstock for several years as the country went through some economically calamitous times. These tough times saw Russia’s currency, the Ruble, get decimated. This depreciation in the ruble, however, served to support the prices of Russia’s main local stock index, the MICEX. After bottoming in early 2014, the index would double in price by the start of 2017.

During a rally following the U.S. presidential election last November, the MICEX achieved another milestone. It was able to finally register a new all-time high near the 1970 level, eclipsing the former highs set back in 2008. After tacking on another 15% into January of this year, the index began to pull back. And by early March, it had pulled all the way back to test the breakout level at the former all-time highs.

Around the same time, we found the MICEX testing another key line on its chart. Since its inception in 2001, the MICEX has been climbing an Up trendline (on a log scale), including touches in 2008, at the early 2014 low, in December 2014 and January 2016. By mid-April, the index had pulled back to test the trendline once again. After threatening to break down below the trendline, the MICEX would bounce into early May.

The MICEX was not able to sustain the rally, however, and it would quickly drop back to test the trendline one more time. And late last week, as the trendline was meeting up with the former highs at the 1970 level, the index would suffer a clear break down below the trendline.

So should this breakdown have investors Russian for the exits? The breakdown does appear to clinch the notion of a post-election “false breakout”. Such false breakouts can result in powerful and painful losses once they reverse and break support, as we are seeing now.

As we note in a premium post at The Lyons Share, however, there may be a glimmer of hope -- though, perhaps a long shot -- on the MICEX chart. Additionally, since the MICEX is priced in rubles, it makes it cumbersome for U.S. investors to get exposure, long or short. Thus, we we also take a look in the post at U.S. Dollar-denominated instruments covering Russian equities to see if, and at what level, they may provide an opportunity for investors.

If you want this “all-access” version of our charts and research, we invite you to check out our new service, The Lyons Share.

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The UK’s FTSE-100 dropped to once again test the level of last year’s breakout to all-time high.

There was no shortage of breakouts among global equity markets in 2016. Perhaps the most monumental, however, was that of the UK’s FTSE-100. Following a 15-year triple top between 1999 and 2014, and a false breakout in 2015, the UK’s benchmark index finally managed a seemingly successful breakout to new all-time highs, as we noted in a post at the end of 2016. After about a 3.5% pop to start the year, the FTSE returned to test the level of its breakout, around 7100, near the end of January, as we indicated to investors at the time. Or, as we put it, the FTSE appeared to be giving investors another chance to “”board the FTSE bus” prior to an ultimate run higher. Indeed, the test proved successful and the FTSE subsequently took investors along for a ride, to the tune of 5% into mid-March. 

It appeared as though the bus had left the station and those investors who had failed to jump aboard at the end of January had likely missed the bus completely. However, last week, following the snap election news out of the UK, the FTSE bus once again returned to the spot of its breakout, giving investors one more chance to hop aboard. However, they needed to hop on quickly as the FTSE has already sped out of the station as if driven by one of those belligerently impatient bus drivers. Specifically, the FTSE popped higher yesterday, gaining more than 2%.

So what next? Well, if it is another successful breakout test, there should be a lot more legs to this rally, i.e., investors who failed to “board the bus” previously can still get on at the next stop without missing too much. However, it is always nice to pick one’s optimal bus stop -- you just have to be ready for the bus.

Were you ready for the FTSE bus when it stopped last week? At The Lyons Share, we’ve been highlighting this potential setup for members for the past week. Check out this Premium TLS Post at our new “all-access” site for ideas on how to take advantage of this development in UK stocks. And don’t miss the bus -- sign up for The Lyons Share!

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Our CurrencyShares British Pound (FXB) long trade from our March 7, 2017 Seasonal Sector Trades Alert is coming to the end of its usual seasonal run, but we are going to hang on and let this winner ride if it holds the December high. The main driver for this seasonal trade, the end of Britain’s fiscal year, was aided by Brexit concerns this time around and FXB is currently up 5.2%. The favorable seasonality behind this trade typically comes to an end now, but recent strength by the pound has traced out bullish a 1-2-3, “W” bottom pattern when FXB closed above its December high earlier this week. This should give FXB an opportunity to see if the breakout can hold and deliver further gains.

The UK’s FTSE-100 Index is testing the level from which it broke out to all-time highs a month ago.

Our final Chart Of The Day, and accompanying post, for 2016 focused on the UK’s main stock index, the FTSE-100. Specifically, it noted that the index was breaking out to all-time highs. More specifically, the tone of the post was the new high’s juxtaposition against the consensus calls for financial calamity in the UK following the Brexit vote. The epic pundit forecasting whiff aside, the main point for investors was quite simply the significance of the FTSE’s new high, above the peaks of April 2015 and October 2016.

Furthermore, as a reminder, the new high near the 7100 level also marked a decisive break above the peaks from 1999-2000 and 2007.

Thus, the significance of this breakout cannot be overstated. There is no guarantee that the breakout will be successful, of course. But after waiting 17 years, 2 cyclical tops and a serious intermediate-term top, the breakout of a month ago is a chart watcher’s dream. And the good news is, if you missed the breakout the first time, you’re getting another shot at it now. That’s because after about a 3.5% pop following the breakout, the FTSE-100 has now pulled back and is approaching a test of that breakout level.

Again, there is no guarantee in this business. All one can do is try to garner the best odds of success in a trade. In this case, testing 17 years of former resistance turned possible support represents about as high odds as one can hope to find. So needless to say there is compelling evidence to hop aboard the FTSE bus here.

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More from Dana Lyons, JLFMI and My401kPro.

The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.

In a development you would not have seen forecast in any Brexit-related headlines 6 months ago, U.K.’s FTSE-100 closed 2016 at an all-time high.

Quick, name the only major (that leaves you out, Pakistan) global country index to close the year at an all-time high. As you’ve probably gathered by the headline, the sub-heading or the image, it is Great Britain. Considering the events of 6 months ago, that statement is beyond ironic. Of course, the events to which we are referring revolve around the Brexit vote by the people of Great Britain to leave the European Union. Prior to the vote, almost no one expected the Brexit referendum to pass. Furthermore, if it hypothetically did pass, nobody expected the U.K.’s FTSE-100 Index to fare too well in the aftermath. Thus, the fictitious newspaper shown above would have been the last thing market observers would have expected to see.

But that is one of the beauties of the market. It continuously delivers results that human nature dares not even conceive of. So it was in this instance as Brexit passed and, despite the assured forecasts by pundits, pollsters and prognosticators, the FTSE did not crash. Oh, it did plummet in the few days following the vote. However, by a week later, the FTSE-100 was above its pre-Brexit levels and on its way to all-time highs 3 months later. Another 3 months later and we see the FTSE closing the year at a new record high.

Naturally, the extensive weakness in the British Pound had something to do with propping up the FTSE -- but hardly all of it. The likely biggest contribution to the FTSE rise was the consensus view in opposition to it, particularly following the Brexit vote.

Along with “BTBTD” (Back To Buying The Dip), 2016 will go down as the folly of the forecasters given the events of Brexit, then the U.S. election. And if 2016 taught us anything about the markets, it is to expect the unexpected. That is one thing we can reliably expect to see more of in 2017.

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More from Dana Lyons, JLFMI and My401kPro.

Far from being a financial catastrophe as predicted, the aftermath of the Brexit vote has seen British stocks soar over 20% to all-time high ground.

As veterans of many decades in the financial markets, one thing we can tell you with a reasonable degree of certainty is this: using news events to guide one’s investment strategy is an impossible, and thus futile, endeavor. There are at least 2 reasons why. First, to the extent that a market’s reaction to a news event is “predictable”, one can never count on being able to exploit that reaction in a timely manner. There will always be a faster computer, a shorter cable or a more “plugged-in” insider to ensure one’s inability to take advantage of such situations.

Secondly, and probably even more challenging, is the fact that market reactions to news events are very seldom “predictable”. In fact, one can probably count on reactions to be counter-intuitive more often than not. Of course, a lot of that has to do with traders’ collective positioning going into a news event. If traders are over-loaded to one side or another on the occasion of a news event, then most likely those traders will end up getting burned, no matter the outcome of the news. The market, after all, reliably and consistently doles out the most pain to the greatest number of participants. That’s what makes news-based investing so difficult. Often, the market’s reaction will have nothing to do with the tone of the news, or even go directly counter human natural reactions.

An obvious, contemporary example of this dynamic is the Brexit issue in late June. First of all, the victory by the Brexit contingent was completely unexpected. Secondly, and more interestingly, the market’s reaction, eventually, to the surprise vote was an outright counter-intuitive one. A vote to exit the European Union, according to most “experts”, would have disastrous ramifications for U.K.’s financial markets. And perhaps for 2 days it looked as if that might be true. However, that “expected” reaction would prove to be very short-lived.

British stocks, specifically, experienced an immediate about-face and began to shoot higher. As we mentioned in an August post, 7 weeks after the Brexit vote, U.K.’s FTSE-100 stock index had actually climbed 20%. It wasn’t just a flash-in-the-pan move either. After pausing at some technical resistance outlined in that August post, the index has once again continued to press higher, now some 23% above the Brexit lows.

And in fact, just today, the FTSE briefly shot above its all-time closing high of 7103.98, printing as high as 7121.93, just 0.81 off of its all-time intra-day high.

So why such a massive 180 degree pivot from the expected Brexit reaction? Again, the market is going to do the most damage to the most people. Furthermore, as we mentioned above, sometimes collective trader positioning is so one-sided that the market is likely to move the other way, regardless of how intuitive their positioning may be relative to the news.

There is some evidence to suggest this was partially the case here with the Brexit news. Specifically, in the U.S., volatility traders had bid up the price of near-term volatility expectations relative to longer-dated ones to a near-unprecedented degree given the circumstances. Therefore, while they may not have predicted that the Brexit vote would win the day, these traders were certainly prepared for that outcome. Thus, when the FTSE began to bounce sharply higher post-Brexit, those volatility traders -- who must have thought they were geniuses -- proceeded to have their lunch handed to them. Again, it’s hard enough to predict the news. It’s harder still to predict the market’s reaction to the news.

Speaking of bouncing, the FTSE bounced to close well off its lows that first post-Brexit trading day in late June. And as we noted in a tweet at the time, the bounce occurred right on top of the broken post-2015 Down trendline. It has hardly slowed down since.

In addition to trading at a record high today, the FTSE also managed another technical accomplishment. It reclaimed the top side of the key post-2011 Up trendline that it had broken in August 2015. Considering all the major lows between 2011-2015 that precisely held the trendline, as well as the fact that the FTSE continues to “respect” it, we are hesitant to dismiss the potential usefulness of the old trendline.

At the moment, that is good news for FTSE bulls. As long as prices remain above the trendline, the FTSE should continue higher -- and at a potentially higher trajectory. Should the FTSE drop back below the trendline, its rally isn’t necessary over, but the trajectory will be stunted.

Either way, using the trendline as a guidepost in the near-future at least affords one with an objective criteria. That beats trying to predict the news, and the market’s reaction to it, any day of the week.

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More from Dana Lyons, JLFMI and My401kPro.

U.K.’s FTSE-100 Index is in the midst of a historic run following the Brexit vote -- but it is running into multi-decade resistance.

The only thing predictable about financial markets is their unpredictability. Take the Brexit episode, for example. Not only was the U.K.’s vote to leave the European Union a surprise to just about everyone, but the resultant market reaction was as well. Yes, the immediate gut-wrenching selloff was probably expected, after knowing the results of the referendum. However, what has taken place since is very interesting. For far from a sustained meltdown in European and British equities. a terrific rally has ensued.

In the U.K., in particular, the popular FTSE-100 Stock Index (FTSE) is in the midst of a historic move. Depending upon where the index closes tomorrow, the FTSE has a chance at registering a 20% rally off of its post-Brexit lows just 7 weeks ago. It would mark just its 6th such rally over a 7-week span in the past 27 years. That’s the good news. The challenging part is that the FTSE is presently bumping up against a potential resistance level whose significance stretches back either 5 years or 16 years, depending on the view. First, the 5-year look.

As this first chart shows, the FTSE is currently testing the Up trendline stemming from the August 2011 lows and connecting the October 2011, October 2014 and December 2014 lows. After breaking below the trendline in August 2015, the FTSE attempted to reclaim the top side of the line on 2 occasions in October 2015 but was soundly rejected. It is now testing the trendline (presently in the mid-6800 range) once again, attempting to climb back above it. If it can do so successfully, the trendline should re-engage as another piece of support for the FTSE.

Now, scrolling back another decade, we see that this area between 6800-6900 has an even longer history of significance.

On the day before Y2K, the FTSE closed at 6930, a record that would stand for the next 15 years. The index would test the 6800 level several times during 2000 before getting cut in half in the subsequent bear market. At the 2007 top, the FTSE stopped just shy of that level, testing the mid-6700′s on 4 occasions before, again, getting chopped in half. By May 2013, the index had once again recovered to the 6800-6900 area. Over the next 16 months, it would test the level, unsuccessfully, at least a half a dozen times.

Finally, in February 2015, the FTSE was able to break through the level and score a new all-time high. It rallied as high as 7100 over the next 2 months before the breakout failed. In the ensuing global equity selloff, the index would drop some 23% into the lows of February 2016. Following a bounce from there, and the moonshot off of the Brexit news, the FTSE finds itself back at the same 6800-6900 level.

So what do we expect to happen? Well, considering the history, one would expect this level to at least pose a stiff challenge for the FTSE temporarily, especially with the index up on a rope since June. Then again, if the markets have taught us anything, as with the Brexit incident, it is that they will consistently deliver the unexpected.

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More from Dana Lyons, JLFMI and My401kPro.