FTSE for Friday: is the sun about to shine on stock markets?

While everyone else is enjoying hot summer weather, stock markets are like the Antarctic. Independent analyst Alistair Strang tests the temperature of the FTSE 100 in his weekly look at the blue-chip index.

Apparently the sun is shining everywhere else except upon stock markets, the FTSE 100 now rigidly falling into line with other world markets, following the herd.

At this time of year, it becomes dangerous to rely on common sense in predicting market direction. There’s currently a heck of a strong argument favouring the last week of July being pretty vile, due to a tranche of economic announcements from the USA which are expected to be viewed negatively.

In addition, there are a bunch of US company earnings reports, also expected to be poor and capable of provoking severe market reversals.

Will this prove to be the case? We’re not convinced.

It’s certainly still the case we suspect the FTSE 100 shall discover sufficient excuse to head to the 6,800 level, but something quite odd occurred on Thursday.

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In our morning Futures update, we alerted clients of our expectation the markets would bounce properly at our secondary drop targets. But, aside from Germany and the Stoxx50, other markets bounced just above our secondary targets. Germany opted to break the secondary quite substantially before bouncing, as did the Stoxx.

Usually, our thinking allows a break of a secondary to imply further market weakness, but the only thing Thursday managed successfully was to send a raft of contrary signals. (The FTSE bounced 9 points above our secondary, suggesting strength).

Past performance is not a guide to future performance.

We’re trying to convey a lack of confidence about overall market directions for Friday! The FTSE closed Thursday's session at 7,039 points, down 1.6%.

For the FTSE, now below 6,996 points looks troubling, calculating with the potential of ongoing reversals to an initial 6,967 points. If broken our secondary now looks problematic, working out at a ridiculous looking 6,748 points. If the drop triggers, the tightest stop loss level looks like 7,052 points.  

However, there’s a strong short-term argument favouring a bounce at 6,967, if it makes an appearance. 

Our alternate scenario, favouring FTSE gains, suggests FTSE strength bettering 7,078 points has the potential of a lift to 7,115 points. If bettered, our secondary calculates as (so impressive it’s unlikely) 7,233 points. Who knows, maybe the sun shall once again shine on the FTSE.