Reasons to anticipate further FTSE 100 recovery

There are quite a few reasons why the index should rally, but the path it takes is the big question.

Is Brent Crude bubbling up & our FTSE for FRIDAY

It has been a few months since we last reviewed Brent crude, and now we’ve reason to suspect it needs an update, not least because of the Blue downtrend which dates back to 2014.

The close-up detail on the chart below is pretty important, tending to highlight that the market is perfectly aware of this downtrend. As shown on the chart inset, Brent crude bubbled up above the trend at the start of May, frothing just above the surface before being driven underground again.

From our perspective, the implication behind this behaviour is straightforward. Next time Brent exceeds the $71 level, it’s going to be difficult to avoid a cycle to an initial $76, with secondary, when exceeded, at a longer term $94. We would anticipate some hesitation, should the $94 level make an appearance.

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For everything to go wrong, our alternate scenario suggests weakness below $63 could now start a drip down to a bottom of $50 eventually.

Our inclination is to view price movements in May as an early warning for gains ahead, especially as it’s quite rare for a commodity to present such a clear case for price growth. Seeing how the market chose to react, when the product bettered a seven-year trend, was quite illuminating, tending to suggest any gain – if triggered – is liable to be sharp and fast, doubtless with a minimal stop loss requirement.

FTSE for FRIDAY (FTSE:UKX)

This week, the FTSE proved as friendly as a visit to a dentist but we’re inclined to hope the reversals have ceased. Certainly, the “surprise” recovery on Thursday for the FTSE 100 index, with the market moving from 2.5% down to a negligible 0.6% down by the end of day, tended to scream “bottom at 6,823 points”, and we should now employ blind faith for further market recovery.

All kidding aside, this is our expectation, but one punctuated by a suspicion there may be another fake drop first. If this proves the case, we’d hope for a bounce around the 6,860 level, if only due to the FTSE falling asleep for 2.5 hours at this level during Tuesday.

We’re inclined to place a trigger level at 7,010 for any recovery as movement above this level calculates as capable of an initial 7,058 points, with secondary, if exceeded, at 7,139 points. Such movement will tend to suggest the last three days were simply an illusion, creating a scenario with an underlying attraction coming from 7,496 points, almost precisely the level of the FTSE before Covid-19 coughed all the toys out of the pram.

There are quite a few deeper reasons to anticipate FTSE recovery, and we feel the main question is the path any recovery shall take. A heck of a lot of major corporates which comprise the FTSE are triggering recovery levels, just failing to move – yet!

Our converse scenario occurs, if the FTSE finds an excuse to slide below 6,857 points. Such a movement threatens reversal continuing to an initial 6,792. If broken, our secondary calculates down at 6,724 and we’d hope for a bounce at such a point.

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.