FTSE 100: what on earth is it up to?

It’s a struggle to explain the index’s recent behaviour, but our columnist gives his take.

FTSE for Friday (FTSE:UKX) 

It’s frustrating when something goes wrong and you’ve no idea what to blame it on.

Take, for instance, the FTSE 100 reversal yesterday from 6,721 to a day low of 6,591.

Closing Thursday at 6,608 points, the index need only slip below 6,590 to enter a further reversal cycle to an initial 6,562 with secondary, if broken, at a bottom (hopefully) of 6,494 points. At this stage, those terrified of mumbo jumbo should leave the room.

At the start of February, the FTSE effectively flatlined for nine boring sessions (circled). The reason for this, we suspect, was fear permeating from US earnings season reporting a steady stream of rotten financial results for 2020.

We'd been expecting this, but we'd also been expecting the markets to crash. The invisible crash is being avoided due to many companies announcing a return to dividends. It’s also being avoided by them announcing many ambitious plans for 2021 to balance the hammering they got from lockdowns. Unfortunately we have an issue, and it relates to the circled area on the chart.

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With share prices, when we see this sort of circled glass floor form following a trend break, we tend to anticipate some real reversals ahead. It's rare we are disappointed with such expectations and it's just a matter of patience usually. In this instance, we're more than a little curious as to whether the FTSE 100 shall perform in similar fashion to share prices.

It this logic proves correct, we calculate that below 6,494 looks capable of a cycle to 6,025 and hopefully ‘bottom’.

As always, there's a slight 'however', thanks to the FTSE previously showing signs of strength. When the FTSE reached up to 6,800 the other day, any conventional logic demanded it enjoy a continued cycle to 7,010 points next, with secondary, if bettered, calculating at 7,320 points. It begs the question: is the FTSE just mucking around while waiting to see if Covid-19 vaccines cause some sort of zombie plague?

Very near term, an early measure of market strength looks possible if the index betters 6,622 points, as this is supposed to generate an initial 6,642 points. If exceeded, the first box of ‘strength’ is ticked, with secondary working out at 6,688 points, potentially even 6,763 presumably sometime next week, and challenging again the level of the previous trend break.

Have a good weekend!

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.