eyeQ: should you chase FTSE 100 or take profits?
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. Here’s what it says about prospects for the UK blue-chip index.
21st January 2025 10:36
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
iShares FTSE 100 ETF (ISF)
Macro Relevance: 68%
Model Value: 814.07p
Fair Value Gap: +1.82% premium to model value
Data correct as at 21 January 2025. Please click glossary for explanation of terms. Long-term strategic model.
Our first video of the new year argued that UK equities were cheap from a macro perspective. The iShares exchange-traded fund (ETF) that tracks the FTSE 100 is called iShares Core FTSE 100 ETF GBP Dist (LSE:ISF) and it sat nearly 2% below eyeQ model value on 6 January.
Since then, the FTSE 100 has rallied 3.4%, and that’s despite all the negative headlines about the back-up in gilt yields and fall in sterling on the currency markets.
Macro conditions have improved at the start of the new year – eyeQ model value has moved higher – but the rally has moved further and faster. ISF now sits 1.8% rich to the broad macro environment.
Rising model value but a rich valuation gap presents a bit of a dilemma. The former means macro supports higher UK equities. The latter means the market has already priced in that good news, and more.
Perhaps a better way to think of it is, if you had some cash waiting to invest, then – from a macro perspective – these aren’t the optimal levels to be chasing. Wait for a pullback.
If you did seize the opportunity two weeks ago and you’re more of an active investor, then be aware the risk-reward has now shifted. Locking in some profits before potentially re-setting at better levels could appeal to the more tactical traders.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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