Infected index: The odds of FTSE 100 plunging below 6,000

The City index has plunged on fears about coronavirus. Our chartist assesses the likelihood of further large falls.

FTSE for Friday (FTSE:UKX) 

A week ago, we thought we risked being panic merchants by giving criteria postulating an early warning scenario for the FTSE 100 to drop to 5,850 points.

Given the UK index has managed lose nearly 700 points, it has dragged itself into a region where 5,850 is no longer such a daft idea. But, crucially, all we have seen is early warning. We have yet to witness, (from our perspective) confirmation.

In fact, if we drag out the chart from the market plunge of from October 2008 until March 2009 and get busy with a red crayon, the market has yet to break through the final uptrend, the one which will suggest the recovery (?) from the lows of 2009 has failed.

Unfortunately, the market is getting close and closure below 6,700 will tend to tick a fairly major box for some troubled times ahead.

Such a scenario allows continued eventual reversal to 6,420 and a deluxe ticket into the land of lower lows.

If 6,420 makes an appearance, we shall be presenting a drop target below such a level at 5,850 points.

If broken, secondary calculates at a bottom (hopefully) of 5,260 points. Alas, there is an unfortunate aspect to such a level which allows calculation of a third level.

It's a market bottom, ultimately, at 3,655. Rather scary to note this is marginally higher than the low of 2009.

In summary, it is early days, despite how utterly foul the last few sessions have proven.

Perhaps it is also worth noting that drops this severe can also reverse with similar strength, if conditions prove to change.

As winter draws to a close, it's easy to suspect (hope) a respiratory virus shall find it difficult to sustain dominance of headlines?

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

On a positive note, near-term, above 6,848 points is supposed to bring recovery for the FTSE 100 to an initial 6,924 points.

If exceeded, secondary works out at 6,964 points though, realistically, any positive sentiment could easily drive the market toward 7,106 points.

If triggered, the tightest stop needs be just under Thursdays low of 6729 points.

Alternately, weakness now below 6,729 allows reversal to an initial 6,580. If broken, secondary is at 6,455.

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.