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Markets are plunging this morning after Trump imposed tariffs on all goods from Mexico. At the same time China released some economic news, the Chinese manufacturing PMI came in lower than expected. So global growth is the main concern this morning, shares are falling and bonds are rallying. US yields are making new lows, which increases the probability the Fed will become dovish. If the Fed becomes dovish markets will rally. This means we are near a bottom.
If we are near a bottom we must be ready to buy shares that have suffered sharp falls like Vodafone. These will rebound when the broader market rallies. If we assume that downside is limited because the Fed will intervene and may be Trump will back down on some issues, the FTSE 100 decline will end above 7000, the S&P decline will end near 2700. It is difficult for Trump to carry on as normal when the stock market is falling, one of its objectives is to make the stock market strong, ideally Trump would like the stock market to make new highs going into the election in 2020.
Shares in Vodafone have greatly underperformed the FTSE 100 since the start of the year. Technically the stock is oversold and because the stock market is near a low, there is a good chance Vodafone will rally to close the massive gap in the FTSE 100 / Vodafone relative strength. The share price is strengthening as seen by the rising share price (bar chart) since mid May while the FTSE 100 (purple line) has been declining during the same period. This is positive relative strength, the first indication the share price is about to rally. The second indication was given recently when the True strength indicator at the bottom of the chart crossed over its signal line. It is confirming the relative strength, a short term target is 145-150.
Thierry Laduguie is Trading Strategist at https://ftse100trading.uk
