Interactive Investor

FTSE for Friday: latest analysis and a forecast for gold

22nd July 2022 07:42

Alistair Strang from Trends and Targets

There's a lot in the charts to suggest the UK stock market should be stuck in reverse gear, but support keeps kicking in. Independent analyst Alistair Strang gives his latest view on the FTSE 100 and the gold price.

There are lots of instances of “Just because you can, doesn’t mean you should”, the current state of the stock market being one of them. 

I've circled on the chart below, a movement the FTSE 100 made a few weeks ago, where during the session the index explored life below the Red uptrend since 2020. Importantly, the session closed without the value of the index below Red.

As mentioned previously, we regard this sort of thing as a warning for impending trouble and, in the case of the FTSE, rather than rushing out and opening a blind short position, it’s perhaps worth considering thinking about things.

Past performance is not a guide to future performance.

From a sanity perspective, we’d be inclined to take the reversal seriously, only if the value of the FTSE manages below that achieved on the day of the trend break. This implies a demand that the FTSE fall below 7,007, as this risks triggering reversal to an initial modest 6,966 points.

If broken, our secondary (and expected bouncy bottom) calculates down at 6,720 points. If triggered, the tightest stop in this scenario works out at an attractive 7,065 points.

More likely, from a near term perspective, it looks like movement next above 7,275 points should attempt 7,327 points, challenging the immediate Blue downtrend since the start of June. Our secondary, should 7,327 be exceeded, is quite amazing, calculating 99 points higher at 7,426 points. This secondary is quite a big deal, placing the index in a zone where a longer term attempt at 7,683 looks possible, matching the market highs for 2022.

Currently, there are plenty of arguments favouring market reversals except, perhaps, the most important one. The market isn’t reversing!

Thoughts on gold

The value of gold experienced a movement on Thursday 21 July, the sort of thing we tend to associate with the silver market – which we refuse to cover due to suspected manipulation making it dangerous to trade.

For gold, there was an obvious drop trigger level at $1,682, the market sleepily wandering a couple of dollars below the trigger before someone noticed. It’s not difficult to imagine someone shouting across the office, “Get Gold Back Up!” as within minutes, the price of Gold rose by $10, back to the level it started the session and pausing briefly at $1,692 dollars.

After tentatively asking, “Is that enough?”, someone shouted “Go Higher, it’ll make it harder to fall” and within minutes, a further $20 was poured onto the value of gold, completely at odds with any conventional movement logic.

The events proved especially irritating, due to us receiving a flurry of emails during the morning session, asking us for a Big Picture review of gold, due to the price looking especially weak. This set the scene for horror, the market going crackers in real time while we worked, utterly spoiling every immediate scenario. It truly was not difficult to imagine a moment of panic, when the market realised what could potentially occur with the gold price.

Past performance is not a guide to future performance.

What could occur?

We had a scenario where below $1,682 allowed a modest reversal to $1,677. The big problem occurred, should $1,677 break as the gold price would enter a zone, now calculating with an eventual bottom at $1,548, a massive drop.

Should our suspicion be correct, this was the reason for the panic recovery, the market unwilling to have the price of gold steal all the headlines for Friday.

We’re not convinced the danger has passed, gold currently needing above $1,790 to move into a place of safety. Near term, above $1,723 calculates with the potential of a gain to $1,747 with secondary, if exceeded, an eventual $1,808 dollars. We’re not convinced.

Have a good ‘le week-end’ and enjoy the French Grand Prix, sometimes one of the better races.

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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