Footsie Fortunes

THE FTSE 100 has fallen to an important support level at 4330. A serious drop below that mark could spell trouble for the blue chip index.

On Tuesday, the index closed at 4318, which is actually below the support level. However, a strong rising trend has been in force since May of last year and therefore we should wait to see a significant break and close below this critical point before concluding that the index has technically broken down.

So what can we expect if the market does close below, say, 4300?

The overall target price if we break down is 4000, which also has psychological significance. This potential fall of 300 points is calculated by measuring the width of the channel formation which the index has been trading between for the past 10 months.

Conversely, if the market survives its flirtation with this major support, then we can expect a rally back up towards the 4560-4580 area.

Investors should wait for confirmation of the break before trading. It is always very tempting to pre-empt a move when studying charts, but you should resist and react to the break, but only when it has occurred.

You may miss 10% of the move, by waiting, but you will have a much higher success rate.

To summarise, we are clearly at a pivotal level where the market could move sharply either way. Wait for the move and react – resist pre-empting the move.

Footise Fortunes is written by Simon Brown of Quantigma - a firm specialising in tools for technical analysis. It is regulated by the Financial Services Authority. For information about courses in technical analysis, go to www.quantigma.net