Interactive Investor

FTSE for Friday: bouncing into the weekend?

20th May 2022 07:20

Alistair Strang from Trends and Targets

At the end of another hectic week when the FTSE 100 traded a 300-point range, independent analyst Alistair Strang examines the potential for a more optimistic session.

After Brexit, there were plenty of horror stories about how London would be devastated at the loss of banking jobs to Europe. Unsurprisingly, this has turned out not to be the case, the European Central Bank currently attempting to order UK banks to fill their pretend operations in Europe. Equally, the volume of derivatives traded in London was supposed to collapse and yet again, financial volumes remain pretty respectable.

A quick calculation reveals a steady climb in values traded through the stock market, up roughly 40% in the years since 2016. It certainly appears rumours of the death of London are turning out to lack substance.

However, despite the hysterical headlines as shown below, the reality for the FTSE 100 is currently less dramatic. None of the writers appear capable of paying attention to the fact the FTSE isn’t even as low as it was just seven sessions ago. Nor has the market broken through the uptrend since the pandemic low of March 2020.

With the FTSE 100 closing Thursday at 7,302 points, the UK market remains comfortably above the Russia inspired low in March, where the market reversed to 6,787 points. We prefer to think of the financial media as being (mostly) respectable but when headline writers appear to form a rabid pack, determined to give the impression of a disaster, it’s difficult to have any sympathy.

The funny thing, those folk who remember the dreadful days of 2008 and early 2009, when reversals felt remorseless and -2% days on the FTSE proved far from unusual, the headlines above fail to make any sense when appreciating this week has witnessed two up days, then two down days for the FTSE. At time of writing, it feels like Friday is scheduled to be a day of some gains, at least in the near term.

Above 7,305 points calculates with the potential of movement to an initial 7,353 points. If exceeded, our secondary works out at an even more respectable 7,438 points.

Allegedly, the tightest stop if this movement triggers works out at 7,264 points and, to be honest, we’re a little fragile regarding the secondary target. It appears to be almost a free gift, something the FTSE tends be quite parsimonious about bestowing. Unfortunately, such a secondary target makes rather a lot of visual sense.

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

Our alternate scenario kicks in, should the market discover an excuse to slip below Thursday's low of 7,228 points. Initially, we can argue for reversal toward 7,180 points where we’d anticipate a short-lived bounce. But should 7,180 break, our secondary calculates at 7,090, a level at which we’d hope for a real rebound.

The market needs break below 7,090 points before we shall concede the scary headline writers maybe have a very real and very dangerous point. But at present, we suspect they’re simply trying to sell newspapers.

Massive thanks to the kind folk who discovered a fascinating advert to visit on this page on Thursday. The clicks paid for the increase in Taylors coffee bean prices (not kidding!)

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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