As I said on my BBC newspaper review, The FTSE 100 has impressed market participants these past couple of weeks after having run a rally of more than 300 points. At the beginning of the month the FTSE was trading near the 6,750 points’ support floor but the move that followed was nothing less than impressive and today the index has broken above its recent highs and is trading at 7,050+ points.
As usually in these cases, the question that comes in mind is whether the FTSE can sustain its gains and build on them to go even higher or whether a reversal is what to expect. I am torn at this point and making a call is not that simple this time. The reason for that is that I see both an opportunity for the London index to go even further but a risk as well that could weigh down on its outlook.
On the upside, with the Inflation report expected this week I believe that there’s an interesting opportunity for the FTSE to go against market’s expectations and continue higher. This might sound as contradictive but I always believe that when the market thinks that there’s no room for more upside it’s exactly that time that money markets overshoot expectations and continue rallying.
On the other hand though we must not disregard the risk posed on the UK stock market from the upcoming elections. As we move closer to them I think that investors will try to protect themselves from any surprises while the race remains tight since markets don’t like uncertainty. So you see there’s no clear answer for me and at times like that I think having a scenario for each case is the best approach.
So if the FTSE builds a steady foothold above the 7,000 points area then my target to the upside lies in the 7,200 points level. To the downside, a clear retreat below the 7,000 points’ pivot could lead the FTSE back down to the 6,900 points’ area of support. As the trigger for either scenarios I regard the Inflation report and the Retail Sales figures from the US during the same day.
