FTSE 100: Here’s what happens if this line is broken

Written 11th March 2018 – 23:04

FTSE Overview (FTSE:UKX)

Last week, the FTSE 100 (UKX) did the sort of thing most folk associate with “magic”, essentially the nonsense trick where someone shuffles upended cups with a coin under one of them. We’ve opted to draw two conclusions from this particular movement.

Firstly, the obvious one being the uptrend since the Brexit vote cannot now be trusted. This solid line proved, for just a few short hours, the market does not regard it as ‘gospel’ and, thus, any future break is liable to prove the harbinger of calamity (Note: this is one of these articles worth printing and sticking on the wall).

At time of writing, this historical uptrend in red is at roughly 7,137.784 points, climbing at a rate of 2 points per day.

Secondly, the less obvious conclusion to be drawn is the market does not actually wish the FTSE to drop down toward 6,800 points just yet.

We can have little doubt weakness below the red line on the chart will, next time, signal travel to our drop target commencing. And if past experience with the recent ‘fake’ drop is anything to go by, once triggered it will probably come rather fast.

There’s now a bit of a problem in attempting to define just what the FTSE must do if it intends to trash our drop expectations.

The headline figure is defined by the unbroken blue line on the chart. This currently lurks at 7,436 and, if bettered, provides final confirmation our thoughts on a drop are the stuff of political promises. And then there’s the ‘dashed blue’ line which resides at 7,365 points, as moves above this particular trend should give early warning recovery is probably real.

Finally, there’s the ‘Dotted Blue’ line which today – Monday – is at 7,303 points. If this line is bettered, it simply advises the immediate rate of descent has eased.

Actually, there’s a little more to it than that. Movement now above 7,303 is supposed generate 7,415 points initially.

This is fairly key, due to a peculiar logic demanding anything above 7,415 telling us bottom is ‘in’ and we should brace ourselves for continued recovery toward 7,533 points.

We are not confident of recovery, if only due to the somewhat forced reversals inflicted on the market during January and February. At times, it almost felt like someone had a cunning plan…

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.

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