FTSE for Friday: don't get excited about recovery prospects

After losing almost 300 points in a shortened trading week, the FTSE 100 index hasn't had much to cheer. Independent analyst Alistair Strang gives his regular end-of-week assessment and discusses where stocks may head next.

We’re struggling to say anything nice about the week just experienced, a relentless push downward for the FTSE 100. It has called into question just where the trend may actually be with so few movements making any sense.

For us at Trends and Targets, the big problem came at the start of July when the UK market broke below the Red uptrend, then stopped dead. It almost felt like someone decided, “Nope, no further” such was the force of the bounce at the 7,000 level.

• Find out about: Trading Account  | Share prices today | Top UK shares

To a lesser degree, we had a puzzle enacted in front of us on Thursday. We’d let clients know we were anticipating the UK market bottoming at around 7,190 points. True to form, at 9.25am, the index hit our target level, flatlining for 5 minutes, then discovered an excuse to fall further, eventually describing a low for the day at 7,131 points.

Surprisingly, this strange behaviour was mirrored around the world, with other markets also breaking below our target “bottom” level before experiencing recovery. This may prove quite dangerous next week, but for now we’re inclined to take some encouragement from the chances of a near-term bounce.

We shall be inclined toward hope should the FTSE 100 move above 7,190 points as a slight recovery cycle toward 7,215 looks possible. Above such a level it appears the market is offering a chance to repay all the losses from Thursday with gains in the direction of 7,272 points. If this scenario triggers, the UK index needs below 7,131 to cancel the prospects, thus giving a wide but tolerable stop loss level.

Past performance is not a guide to future performance

Of course, it’s worth remembering that Friday 2 September is also the US non-farm payroll day, jobs numbers which once played havoc with the UK market but nowadays, less so.

However, below 7,130 risks entering a reversal cycle down to 7,034 points initially. If broken, our secondary calculates at 6,906 points. We’re very hesitant to speculate on bounce points in this scenario as, if triggered, the FTSE will wake up to discover it’s trading in a zone where the Big Picture bottom works out at around 6,400 points.

• 10 UK shares that Warren Buffett might buy
• How far south is the FTSE 100 heading?
• City bank names favourite dividend stocks with yields of 8-10%
• Why reading charts can help you become a better investor

It’s probably worth remembering that US payroll numbers will invariably be optimistic estimates, usually provoking market gains until reality establishes itself sometime next week.

Have a good weekend.