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FTSE retreat leaves uptrend intact

Price at time of writing – 6512.

The FTSE has retreated by over 100 points in the past two weeks, with much of this decline occurring last Friday.

The FTSE 100 has retreated by over 100 points in the past two weeks, with much of this decline occurring last Friday. 

After threatening to renew its upside momentum at the time of my last update, once again the index has been shunted into the crucial support/resistance band defined as 6491-6556. Despite this, no damage has been inflicted to the longer-term uptrend, and my upside target remains unchanged.

It is now over six months since the FTSE completed its advance to my then target band of 6419-6556. And after all this time the alignment of key percentages that created this band is still exerting influence. Dull trading over the summer months is a feature of European stock markets, however, and the move to fulfil my targets may not occur until more seasonally buoyant markets return in the lead-up to Christmas. Compounding last week's weakness is the desire of hedge fund managers to lock in third-quarter gains ahead of their performance fee calculations.

Italian political instability is nothing new, and the last time the US government was shut down (under President Clinton in late 2005 and early 2006, for a total of 28 days) saw the US stock market perform very strongly. If I remember correctly, the market was cheered by the prospect that a shutdown government could no longer meddle in the free market economy. So I believe that neither the political events in Italy nor the US appear likely to knock the bull-market off trend.

Recommendation: stay long. Target 6922. Stop-losses can be activated on momentum below 6300.

FTSE 100 chart

 

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