Why FTSE 100 is on high alert

Written 19 March 00:20

FTSE THIS WEEK (FTSE:UKX)

The market is driving us a little crazy currently. Regular readers will know we’re fond of straight lines and currently, the one we regard as important – the trend since the apparently suicidal Brexit vote – is loitering at roughly 7150.735 points. As the market closed the week at 7,164 points, obviously the UK index remains in the post Brexit uptrend.

Unfortunately, the story is not quite as simple.

At the start of March, the FTSE (UKX) broke below this important uptrend only to recover within days. But last week, it again broke below the uptrend and spent the best part of the week threatening calamity – except on Friday it exhibited a miracle recovery, closing the week 14 points above the trend.

When this sort of nonsense occurs, we are left with little choice but to view the trend as wrong. Or to be more precise, probably wrong! Or, maybe not…

In plain English, it’s clear the market does not see a firm reason to collapse just yet and is choosing to bear-hug this trend – which may not be a trend. With shares, this is pretty familiar territory and tends make us suspect any individual share is “dodgy”, just needing a negative news report to stuff the price.

If we chose the path of common sense and treat the FTSE in a similar fashion, we’d need see the index below its prior low of 7,069 before nodding sagely and confirming, “yes, it’s going down and doubtless quite fast”. Such an instance remains pointing at an initial 6,800 points.

Again, applying our ‘share logic’ against the FTSE, the demand is to see the index now better 7,412 points (blue) before totally abandoning the calculation which favours 6,800 points.

What happens if 7,412 is bettered?

An initial expectation of 7,525 makes sense, then we need stir the tea leaves again. For now, like a person with a slightly suspect Leukaemia blood count, the UK market is officially on “Watch, Wait and be Afraid!”

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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