At Tricio we have been fans of UK equity small caps for some time now. Valuations for the FTSE 250 index are attractive, but sentiment has been negative. The UK is teetering on the brink of recession, and the Bank of England continues to suggest that rates will need to stay higher for longer. The recent fall in inflation readings has started to lift investor demand, albeit from low levels. A 10% rally over a few weeks is encouraging though. The chart below (weekly with 13 and 50-week moving averages) shows that the index is above the 13-week moving average now and is putting the 50-week moving average under pressure. Falling line resistance, drawn from some key highs (but missing the early 2022 high) is also under pressure. Sustained gains above the 19,000 area will see these cleared, leaving the flat red line near 20,650 attracting next. A push to new all-time highs would be open once the 20,650 area gives way. The backdrop of high UK rates, recession risk and an election before 28th of January 2025 could dampen bullish spirits. On the other hand, stocks do seem to be able to climb walls of worry, but technically, clearing resistance levels over the coming weeks will be important. See if pullbacks hold above the 13-week moving average now, with rising line support near 16,700 important to hold below this.
A look at the top three shares in the index (by weighting in the index) shows that Intermediate Capital Group (weekly chart below) is currently breaking above a consolidation area. The 13 and 50-week moving averages show a bullish cross, and there is plenty of room for a recovery rally. The key will be to see if the current break higher can hold, and more importantly continue to extend higher.
The chart below is Persimmon (weekly, with 13 and 50-week moving averages). The technical picture here is a recovery as well, but from a really low place. The turn lower in 2022 and this year below the 2020 lows illustrates how much bear pressure housebuilders have been under. Any recovery in the share price at this juncture is probably seen as a bear market rally, or dead cat bounce. Technically, clearing the flat line above 1,500p will be important to really suggest that sentiment has shifted to the upside. Holding above the 13-week moving average will help upside thoughts building ahead of that.
Finally, Games Workshop (weekly chart below) is worth a look at again. The gap break higher was closed but the share is pushing up again. Watch the turn above the 13-week moving average to see if this can hold with falling line resistance at the 11,375p zone key to break for bulls. Still aiming for new highs here, see if the 13-week, and then the 50-week moving average, can hold up on dips.