FTSE 100 forecast - 6th December 2010
The ftse 100 index closed marginally lower on Friday, ending the week and the London trading session with a narrow spread down candle, and closing at 5745.32, down 22.24 index points on the day as the markets considered the problems in Europe, coupled with the shocking unemployment data in the US. What was particularly interesting, both in the UK and in the US, was the market reaction to the Non Farm Payroll figures, which whilst awful, failed to trigger a sell off in equities, and indeed in the US markets, the Dow Jones actually closed higher, having fallen initially on the release. The question of course is whether the markets are now becoming inured to bad news, with investors continuing to hold their nerve in the face of the ongoing problems with sovereign debt in Europe, and the clear signal of a stagnant economy in the US as evidenced with Friday’s figures.
From a technical perspective, Friday’s price action on the FTSE 100 daily chart came as no great surprise following two days of strong gains for the index, with traders squaring positions and taking profits ahead of the weekend. However, the important feature of the day, was the test to the downside, which found strong support from the 40 day moving average in the 5,720 area, suggesting that bullish sentiment remains firmly in place for equities, and as such we should expect to see a continuation of the recent rally in the short term. The key level, as outlined in my previous market commentaries, has now been established at 5,900, and any move beyond this region will then give us a strongly bullish signal and create a platform of support for a move towards 6,000 and beyond before the end of the calendar year.
The moving averages are broadly supportive, but for a longer term trend to develop we need to see both the 9 and 14 day moving averages break and hold above the 40 day moving average once more, thereby adding further weight to any longer term continuation of the recent bullish trend. The 200 day moving average continues to slant higher, and as such the longer term outlook remains firmly bullish with the only caveat being the ongoing issues in Europe, which may yet come to haunt the markets in due course. Indeed over the weekend, we have already seen hints that Standard and Poors are considering a down grade of Greek sovereign debt, and whilst this news may cause only minor ripples in the market , any suggestion of contagion into other EU states such as Spain, Portugal or particularly Italy, would certainly send a shock wave, and cause major falls in equities. For the time being however, the outlook remains positive, and I am backing the Santa Claus rally to continue into the holiday period.
