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Many traders of US security instruments closely follow the UK blue chip index FTSE. Late last week, the FTSE (102 components) AD line broke to new correction lows, likely not a good sign for the index's intermediate term health.
The first chart of the FTSE component AD line from mid-2003 shows good strength during the FTSE index price run from 2003 lows. Like many of the US AD lines, the FTSE component AD line began diverging with price in the summer of 2007. However, since the FTSE price lows in March 2008, its component AD line had difficulties gaining much traction, and Friday, June 6, 2008 gave up breaking its AD line triple bottom support. This FTSE component AD line chart zooms in, clearly illustrating its AD line violation of tested support. In contrast, the US equivalent blue chip index, the S&P 100 (OEX), AD line has been grinding higher along with price since the March 2008 lows, and thus far, has not confirmed the short term lows violation of OEX price. Very few US index AD lines made new correction lows last week, with the only broader based index AD achieving new lows being the 1000 lowest cap issues of the 4000 highest quality US stocks as defined by Russell Investments (Russell 1000, Russell 2000, and Russell MicroCap indices). I refer to these very small cap US stocks as the "NanoCap" index. Thus these "bottom of the barrel" secondary US issues' AD line has done no worse than the FTSE blue chip AD line. The FTSE AD McSum has also exhibited the FTSE component liquidity problems by having yet to challenge its zero line. Note like most US index AD McSums, the FTSE component AD McSum did not positively diverge with price at its March price lows.... perhaps the FTSE AD McSum divergence with price is yet to come? Contrast the OEX AD McSum behavior over the past few months versus the FTSE AD McSum weakness. Granted, the OEX AD McSum has not been a shining example of unbridled power from its March low, but it has been much stronger than the FTSE AD McSum. The FTSE AD McClellan Oscillator (MCO), like its AD McSum, did not carve out a divergence with price between the January and March 2008 price lows. Although any current potential FTSE AD MCO divergence with price could be wiped out easily next week, the circled areas of the FTSE price (red curve) and its AD MCO (blue curve), are the same time frame. Like many US index AD MCOs, the FTSE AD MCO was unable to appreciably rise above zero in recent days, and has formed a complex structure below zero suggesting the FTSE bears are again in control. For those not having access to the OEX AD MCO indicator via other sources, below is that chart for comparison with the FTSE AD MCO. In summary, the liquidity health of the FTSE components has not been stellar from its March price lows, which likely is pointing to further weakness in the FTSE. For better or worse, the Bank Of England has not slashed interest rates to the degree the US Federal Reserve has, thus the UK markets are not swimming in a sea of liquidity courtesy of its central banking system... which may be prudent policy for the longer term, time will tell. FWIW Randy