FTSE for Friday: the path to its pre-Covid high

This technical analyst discusses how the blue-chip index might end the week and also looks at its longer term prospects. 

The FTSE 100 looks like it’s at the start of its own little revolution. Don’t get us wrong, the UK market remains revolting, but some hope is becoming evident as the index only needs gain another 8% to challenge the level of the pre-Covid highs at around 7,500 points. 

If we opt to use France and its CAC40 as a model, when this index decided to confirm it was heading north, it messed around for about 10 sessions within a very tight trading range. Suddenly, it developed some faith in itself and made the required lunge toward the pre-Covid level in just seven sessions.

If this French model proves correct, we should doubtless anticipate the FTSE messing around for the next few weeks, the market oscillating between the 6,800 level and below the 7,000 mark until such time an excuse is discovered to break free.

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There’s a fairly large “however”, thanks to the UK being one of the last markets to challenge pre-pandemic highs. As a result, the FTSE may opt to behave like a duckling realising it has dithered too far from its flock, moving like the clappers to suddenly catch up. We can certainly hope but there is something else worthy of consideration.

Since the Pandemic drop in March 2020, we’ve become considerably less reliant on downtrends and uptrends. Once upon a time, these indicators proved fairly reliable when gauging market direction, but now we’re forced to pay even more attention to our software calculations, thanks to a break of a trend no longer being a safe indicator of what’s coming. 

Of course, the media are spoiled for choice when attempting to pick stories from the tree of misery, and we suspect the next four weeks shall provide a further excuse for terrors. In addition to Covid, Brexit, Northern Ireland, the added spectre of Scottish independence looks certain rear its head, due to Mr Salmond opting to contest Scottish elections at the start of May. 

Frankly, we doubt ‘fear driven reversals’ shall prove to be the case as London has tended ignore the rest of the world fairly conclusively since March 2020. Maybe it’s a Brexit thing but we’re hesitant to think the FTSE shall suddenly opt to become logical! There is one interesting number at 7,160 points. Should London exceed such a point, strong upward movement becomes almost impossible to avoid due to the Big Picture currently painting a long-term target around the 8,000-point level. 

Certainly, as someone who received their second Covid-19 vaccine on Thursday, the attraction of normality in the future has already provoked a distinct change of mood. (The immediate side effects could best be described as a mild hangover if anyone is interested.)

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

FTSE for FRIDAY

As for Friday and the FTSE, above 6,945 looks capable of movement to an initial tame 6,960 points. If exceeded, our secondary calculates at 7,003 points but, amazingly, we can concede the longer term ruling attraction is allegedly at 7,113 points. 

This is rather close to the important trigger level mentioned in the previous paragraph. Importantly, we do not anticipate such movement occurring within a single day – or even a week – given the pace of travel recently. We should also mention some volatility is expected, when (if) the 7,100 level makes an appearance.

Our alternate scenario for the FTSE feels less comfortable, indicating the market requires a break below 6,870 to justify concerns. At present, this calculates with the potential of reversal to an initial 6,840 points with secondary, if broken, at 6,790 points. A word of warning is “caution”. Now the UK market is attempting recovery, it is very possible reversals shall underperform and fail to meet drop targets.

Have a good weekend, hopefully above freezing and without snow and rain. Here in Scotland, the term ‘4 Seasons in One Day’ has mutated into ‘4 Seasons in One Dog Walk’.

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.