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Yesterday saw the FTSE 100 rally 119 points to all-time highs, opening on its lows and closing on its highs for good measure. The intraday range was the largest since 7th December 2016 and is clear evidence of range expansion.
However, as I outline below, the next move for the index is critical.
Before delving in to technical analysis, let’s take a step back and look at what drove yesterday’s bullish burst. Firstly, it wasn’t the case of ‘a rising tide lifts all boats’. In fact, quite the opposite, as there was clear evidence of individual position level dispersion across the index.
A combination of Trump ditching his abrasive rhetoric when addressing Congress and Fed members delivering a clear and consistent messages re the strength of the US economy drove the FTSE 100’s rally. This in turn saw investors price in increased likelihood of Trump being able to pass expansionary policies and the US economy being better positioned to weather a path of rising rates. Construction & Materials, Industrial Metals & Mining and the Mining sectors being the three best performing FTSE 350 sectors as well as Ashtead & CRH being the best performing individual companies on the day provide clear evidence of this.
So where next? Well, as I said above, the FTSE 100’s next move is critical and here is why.
Yesterday’s rally sees the index break higher from a period of consolidation and in the process clear the January swing high. Any roll back below this breakout zone would confirm this as a false break, a highly bearish sign. Were this to happen then it would pave the way for prices to leg back lower to ~7300, or lower.
Conversely, bulls will be looking for the index to hold at their current level – prices breaking to and holding at trend highs is a clear sign of bullish momentum. In this scenario we would likely see the January swing high act as a key support level going forward. So far today, prices are doing exactly this and hence, if the index closes at where it is currently trading (7,387), then we would have yet more evidence that the FTSE 100’s stellar uptrend will roll on.
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