FTSE 100 Could Rise on Rates

By: Richard_Cox

Stock markets in the UK have been attempting to recover from recent declines and regain the foothold that was established earlier this year in the 7140 region.  Most global stock benchmarks have had a positive year in 2015 but the story has been somewhat different in the UK where there is still the peripheral impact of sovereign debt in the Eurozone to complicate investment ideas. 

Of course, any indication that member states will need to leave the union is going to be something that negatively affects the FTSE 100.  So traders and investors that do not currently have active positions in the market will need to continue monitoring these elements as the weeks move on and we head more firmly into the second half of this year.  Those looking to establish a bullish stance will likely rest their stance on the argument that the Bank of England (BoE) has not made any substantive indication that the majority of its voting members are in favor of increases in interest rates.  If this continues, we will likely see another run at 7100 in the next few months, so there is still some fundamental reasoning to be found for the bullish perspective. 

Chart Perspective:  FTSE 100

Source:  CornerTrader

On the technical side, there is perhaps less reason to be optimistic.  The daily MACD indicator reading is now firmly in negative territory and we have a very weak looking head and shoulders pattern that is developing on the longer time frames.  This pattern has a lower right shoulder and this paired with the indicator readings suggests a very bearish stance should be taken.  This means that traders can look to sell rallies in the short to medium term. 

Longer term, however, the outlook is different given the fact that we are still unlikely to see interest rate increases at the Bank of England.  This creates another scenario where shorter term technical trading can be used in conjunction with a longer term fundamental view.  Inflationary pressures at both the consumer and producer levels remain subdued in the UK, so there is still little reason for the central bank to start raising rates.  No-action results at BoE meetings will likely send prices higher once the more immediate and shorter term technical resistance levels are broken near 7100.  In all, these are the factors that will need to be assessed going forward for those that are looking to gain exposure in the FTSE 100.  The larger view portends higher prices but the technical picture suggests we could see some order flow obstacles along the way.

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

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