Can The FTSE 100 Sustain Its Elevated Levels?

By: Richard_Cox

The FTSE 100 is continuing to push forward with its historic bull run and markets are now clearly set on overcoming the closely watch 7,000 mark.  It is never surprising to see this much attention spent on moves in a major stock index to surpass a significantly psychological round figure like this but the real question for investors is in whether or not these latest moves will be sustainable over the long-term.  On the supportive side is the fact that consumer inflation levels in the UK have dropped to zero.  This is a factor that is likely to prove to be important given the elevated inflation levels the region has experienced for most of the last decade. 

Declines in inflation have also led to lower values in the British Pound (GBP), and this is another external factors that could support activity in stock markets over the next few months.  Specifically, lower currency values tend to make it easier for foreign consumers to buy products that are made in the UK.  This should help to support the outlook for quarterly earnings and this is a positive factor that could help the FTSE 100 sustain any moves that are seen above the 7,000 mark.
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FTSE 100 - Daily Chart

Critical Resistance:   7020
Critical Support:   6695

Trading Bias:  Bullish on Dips

(Chart Source:  CornerTrader)

FTSE 100 - Stock Trading Strategy:  We have seen a break to new highs but be cautious about entering long at these elevated levels.  More prudent move is to wait for a drop back to support at 6695 before buying. 

“We are seeing another surge higher in the FTSE 100 and the UK index has officially broken to new highs for the year just below 7,000,” said Ryan Mitchell, markets analyst at Australian Stock Report.  “There is little in the way of resistance at this stage, so the balance of the evidence supports a final break of that closely watched psychological level.”  With this in mind, it might seem easy for new traders to start establishing positions here in anticipation of another run higher.  But it should be remembered that prices trading at levels like these make it difficult for investors to skew the risk to reward outlook in their favor. 

To remedy this, it makes sense to identify price levels that might act as strong support on any retracement and the first important level to watch now comes in at 6,695.  The MACD indicator is starting to turn upward from positive territory, so the trend is still clearly bullish despite all of the year’s moves higher.  Those looking to trade short term from the bearish angle can wait for a spike into the 7,020 area as we are likely to see some profit taking from day traders if this level is seen. 

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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