Can banks help FTSE through resistance?

Price at time of writing – 6622.

Despite a poor couple of days, the FTSE has managed a rise of over 100 points since my last update on 25 March. 

To break free of its current shackles, the index first needs to overcome resistance at 6775. Until that level (and the even stronger resistance at my target 6922) has been tackled, my short-term recommendation remains to stay short.

It is a hard task for the FTSE to sustain strong gains without participation from its heavily-weighted banking and financial sectors. It is no surprise that the FTSE’s peak in May 2013 coincided with that of the FTSE 350 bank sector, with the later currently down around 18% since that high. The FTSE 350 bank sector is fast approaching strong support in the form of its G4 level, and should be watched closely to determine whether strength at that support (the level 4328) might also coincide with a turn-around in the fortunes of the FTSE. Moreover, a healthy banking sector is a prerequisite for a thriving UK economy generally. I wonder if it is time for regulators and commentators to warm to this, and move to end the regulatory overload placed upon UK financial institutions following the financial crisis.

My former target band of 6491-6556 is now acting as the new support zone, and has become the centre-of-gravity to the past year’s trading range. The line representing a 12.5% rise from the low in June 2013 (at 6775) has acted as the top of this range, and a break above that level will provide the first signal that the FTSE is ready to advance.

Recommendation: stay short, or sell on any further rise to 6920. Target 6293. Stop-losses remain unchanged and triggered only on momentum above 6975.

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