Interactive Investor

FTSE 100: Pre-Brexit upside potential

The UK market continues to power upward, but what's what driving it? Our chartist tells all.

22nd March 2019 08:58

Alistair Strang from Trends and Targets

The UK market continues to power itself upward, but what's what behind it? Our chartist reveals all.

FTSE for FRIDAY (FTSE:UKX) 

The UK market continues to power itself upward, lifted by what? We bang on about how important "higher highs" can be, a notion amply proved by market moves since March 17th. Once a market starts growing, it becomes difficult to slow things down, despite an entire political class' best efforts.

The immediate situation for the FTSE 100 index is slightly confusing. Generally when a "higher high" cycle commences, the market will only grow so far before some doubt establishes, provoking a reversal to the point it all started. In the case of the FTSE, this means we should not be aghast to witness travel to around 7,250 in the days ahead.

Prior to this, we'd hope anything near term above 7,371 should bring some oomph for an initial 7,386 points.

If bettered, secondary is at 7,402 points and an ideal level from which relaxation can be expected. This sort of ambition comes nowhere close to bothering the blue downtrend, thus giving the impression hope remains for the longer-term.

Unfortunately, if taking our rhetoric as gospel, the index could continue to 7,454 should 7,402 be exceeded, so that's a reasonable level to try a stop loss at. Our suspicion, should Brexit be delayed, is of reversal to 7,250 prior to an attempt at the blue trend line on the chart below.
 
All of this is, of course, completely insane! 
 
We're the first to admit it as there's something going on which software alone cannot account for. When a market makes a higher high, it's almost unheard of for a price to accelerate to target without deflection. Instead, a price will generally make it around half way to a primary target and then, doubt establishes itself amongst traders.

A sell-off to collect profit thus will generally fuel a reversal down to whatever prior level it started from. Now, smart traders (in the absence of negative news) will again buy into a market, hoping for a bounce with the next surge upward hopefully exceeded the previous half way mark.

Simple? Or just human nature?

The FTSE complicates things as we're showing a strange tier of target levels, a collection of 100-point leaps from 7,402 through 7,500 all the way to 7,600.

At present, the important detail comes if 7,402 is exceeded as continued traffic to 7,509 is theoretically possible. We do expect that blue line to have a say in matters though.

At present, we're not inclined to take any reversal as serious unless the FTSE stumbles below the 7,300 level before attempting our immediate 7,386 target. This risks being a poor show, possibly the harbinger of coming weakness to 7,196 and below to a bottom of 7,164 points.
 
Finally, have a good weekend and "hello again" to our regular readers on Reunion Island, along with new visitors from Antigua and Barbuda (you're all lucky people!)

Source: Trends and Targets      Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

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