FTSE 100 - FTSE forecast today

The FTSE 100 index recovered some of the lost ground of Wednesday, ending with a narrow spread up candle, but one with a deep wick to the upper body, closing the London trading session yesterday at 5,677.89, a rise of 31.87 on the day or 0.56%. The short term bearish sentiment for the index that we forecast late last week duly arrived on Tuesday and Wednesday this week, as the FTSE 100 broke and closed below both the 9 and 14 day moving averages, suggesting short term weakness. This was confirmed yesterday, with the index reaching an intra day high of 5,711.82, which coincided with the 14 day moving average, and as such suggesting that this indicator is now a barrier to a short term recovery. To the downside, we have the 40 day moving average which should provide a solid platform of support if the current retracement lasts longer than a few days. In the medium term, for a continuation of the bullish trend of the last few weeks, we need to see a break and hold above the short term moving averages, followed by a move beyond the high of Monday at 5,794, and should this be achieved as expected, then this will provide the springboard for a sustained move higher once again as we move towards our interim targets of 5,833 in the medium term, and 6,000 and beyond by the year end. Our longer term outlook remains firmly bullish, and with the technical picture remaining positive, we are still on track to achieve the targets outlined above in due course.

From a fundamental perspective of course equity markets are being dominated by the ongoing issues concerning the US economy, and in particular the FED’s policy towards quantitative easing. Trading this week has been marked by nervousness and lower than average volumes, as investors, traders and speculators withdraw from the markets as we await next Wednesday’s key rate decision and statement from the FED, which is likely to signal the start of QE2. Other than various hints from the FED over the last few weeks, the extent and depth has been subject to rumour and speculation, with the US dollar initially receiving a boost following hints that the quantitative easing programme was likely to be less extensive than had first been expected. As such we can expect further sideways consolidation ahead of Wednesday’s key release over the next few days.

It is interesting to note on the Dow Jones daily chart, that whilst the market here is also consolidating sideways, the Dow has failed to breach the short term moving averages, unlike the ftse 100, and as such continues to signal a positive short term picture ahead of next week’s meeting. You can read a more detailed analysis for the Dow Jones index here.