The Motley Fool

3 Signs That The FTSE 100 Is About To Plummet

The FTSE 100 has had a rough start to the year. After a steady 2014, the FTSE 100 has charged in to 2015 and for many investors, now could be the perfect time to sell up.

You see, the market seems to be in the final stages of a bull market and warning signs, of an impending market crash, are starting to flash. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

1. Volatility 

Historically, one of the traits that has always preceded a market correction, or crash, has been an increased level of volatility following a period of exceptional calm.

And 2014 was an exceptionally calm year. Indeed, the VIX, or ‘fear gauge’ as it’s known on Wall Street, traded below 15 for much of 2014 and at one point the index traded as low as 11, one of the lowest levels recorded for two decades. A high reading on the VIX indicates increased volatility, during Sept 2008 the index surged to 60 as markets plummeted. 

So 2014 was reactively calm but 2015 has started with a bang. The VIX has nearly doubled over the past few weeks as traders have started to get jumpy and commodities have sold off. 

2. Dr Copper 

Copper has a reputation for its ability to predict turning points in the global economy. Copper is used in almost all industries so high demand, or increasing economic output, usually pushes the price of the base metal higher. 

However, a lack of demand and falling prices may indicate an economic slowdown. 

During the past few days the price of copper has plunged to a nine-year low, after the World Bank cut its global growth forecast on concerns over the Chinese property market.

But it’s not just copper that’s slumping, all commodities are taking a hit. The Bloomberg Commodity index, which tracks the prices of 22 different commodities, peaked at the end of April 2011 and has dived to a 12-year low. 

For the FTSE 100 this is really bad news. Collapsing commodity prices signal slowing global growth and many of the FTSE 100’s constituents are active in the commodity sector. Earnings are set to fall across the whole commodity industry and the FTSE 100 will suffer as a result. 

3. Unbalanced optimism

Finally, investors are too optimistic. In the past, all crashes have been preceded by high levels of investor optimism. It’s usually the case that as investors become over optimistic, they fail to correctly identify risk, taking risky bets and borrowing too much money in order to increase returns.

According to the RBC capital markets market sentiment indicator, investor optimism is currently at ten-year highs. This data is based on the number of open positions, bets on the market going up and feedback from financial advisors’. What’s more, margin debt — money borrowed to buy shares — at the New York Stock Exchange, hit an all-time high at the end of last year. 

The bottom line 

There are many reasons why the market could suddenly decide to take a dive. While there are several warning signs flashing red right now, it’s almost impossible to accurately predict the next crash.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.