Footsie Fortunes
WE SHOULD not really be complaining that the Footsie is resting for a while. The market is well away from its lows of last March – in fact the FTSE-100 has risen more than 30% since then. If the market can form a solid base around this 4200-4500 area, than we can hope for another year of healthy gains.
In the short term however, there are some technical issues influencing the market. Last week I spotted a ?double-top‘ formation, which was completed on Thursday, when the market broke down below 4430.
The expected target price for this particular technical formation is initially 4330.
As well as being an objective for the next few days, 4330 represents an area of reasonable support for the market, as there was a great deal of trading activity at this level between the beginning of November 2003 and Christmas.
This 4330 area should generate long positions for the move back up, to sustain the upward trend from the middle of last year.
A close below 4310 would result in further weakness towards 4220. If we trade lower from there then we are in serious danger of stalling that medium-term upward trend, with potential for serious correction to the downside.
Let's hope that is not the case and the focus for the next couple of days should be on the Bank of England‘s decision and report on interest rates.
The consensus is for a 1/4 point increase in rate. However, the strong pound and lower consumer spending may well delay fiscal tightening for another month or two.
To summarise, look for a close below 4430, which would signal a fall of 100 points to 4330. If 4430 is not breached, then the Footsie will gain firmer footing before testing the highs experienced last week above 4500.
Footsie Fortunes is written by Simon Brown of Quantigma - a firm specialising in tools for technical analysis. It is regulated by the Financial Services Authority. To register for a free options seminar visit www.quantigma.com.
