FTSE 100: Treading Water Following Breakout
- The FTSE 100 takes back more than ‘Brexit’ losses, breaks above resistance
- Large disparity in performance between the multi-national 100 index and the domestically focused mid-cap 250
- As long as support holds, bias is higher, but not a market to chase
The last time we discussed the FTSE 100 we were noting a major area of resistance just on the horizon. In the last commentary regarding the UK index, we made this notation on the chart, “Not interested in ‘blind’ sales here, but no doubt we are upon a reaction zone and want to pay attention to how the market responds.” The market’s response? The FTSE 100 went into ‘frontal assault’ mode, easily clearing through resistance levels; and thus giving zero reason to establish a short. This is why blindly shorting levels without first seeing a turn in momentum can be dangerous.
The day it broke on through to the other side was also the day the BoE’s Carney hinted towards a summer stimulus package (rate cuts, etc.) in the face of what the bank unquestionably believes will be a difficult period ahead for the British economy. The pound got slammed, stocks rallied on the commentary.
Especially the FTSE 100, where there are numerous large multi-national companies with revenue streams outside of the UK. Easy monetary policy means a weaker currency and a boost to corporate profits.
On the other hand, the FTSE 250, a mid-cap index, is more domestically focused, and thus didn’t receive the same kind of lift as the 100. The chart of this index is much more in line with other major European indices – the DAX and CAC – which are closer to making a post-Brexit low than they are to making a new high. The FTSE 250 is over 8% lower from its June 23 close, while the 100 is over 3% higher.
Getting back to the technical landscape for the FTSE 100: It has clearly breached major resistance, and thus far held on a retest, making new support out of old resistance. The consolidation following the large rise and break above resistance is encouraging. As long as the 6400s continue to hold, then the bias is upward. But keep in mind, the FTSE is a shifty index to trade and best traded from a mean-reversion trader’s perspective. Any purchases from here will likely be best served on a dip. Chasing breakouts is not likely to yield good results over the long-run. In the event we see the UK index sink back below 6400, then so will our bias on any failed attempts to rally following the breakdown.
FTSE (UK100) Daily
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---Written by Paul Robinson, Market Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.