How far can FTSE 100 rally before general election?

FTSE for this coming week (FTSE:UKX)

As the UK general election draws ever closer, the FTSE 100 continues to exhibit surprising degrees of optimism.

If it were a share, we'd assume it to be in a "buy on the rumour, sell on the news" phase of movement. Or, in other words, regardless who wins this election we should expect a tumble afterwards.

There are two important numbers currently (7,480 and 7,508) worthy of some examination.

From an immediate perspective, it seems movement on the FTSE above 7,436 is expected to bring 7,480 as a pretty major point of interest, one of these levels we tend to suspect some turbulence around.

When we gaze at the tea leaves, the market needs to better 7,508 to cancel the suspicion of turbulence and thus, if feeling brave, opening a short of 7,480 makes some sense with a stop fairly tight at 7,508.

At time of writing, we've no idea how much turbulence can be expected, but generally these things present themselves as a pretty reliable time for the market to attempt a bonk against the immediate uptrend - around the 7,400 point.

As always, there's something else to consider.

We're almost wilfully ignoring an important facet to this scenario. Once the market betters 7,447, we're in the situation where the FTSE is (again) trading higher than ever before and the land of higher highs tends to change everything.

This is why we felt the need to slip 7,508 into the conversation as the situation now exists that, should the FTSE trade above 7,508, it moves into a new gear with 7,632 presenting itself as the next major turbulence point.

For now, be careful with shorts would be our opinion.

What happens if the FTSE breaks 7,400 points?

Apparently, we should mention weakness to an initial 7,355 points. And if this level breaks, our secondary comes in at a suspicious looking 7,300.99 points.

Visually, the stop level - if 7,400 breaks - is quite absurd at just 7,411 points. We don't entirely believe it, but it tends solidify the notion the market remains in a pretty solid uptrend for now.

Of course, regardless who actually wins this election, we shall tend to anticipate some reversals simply due to "the news" phase of the movement cycle. Remember, this analysis relates to the FTSE and not FTSE Futures.

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, Shareprice, 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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