The FTSE 100 has been more of an investment this last 12 months rather than a speculative play like the S&P500. Having dropped to a low around 4800 in 2020 today we see the index higher by nearly 60%.
Weekly Index Analysis
The FTSE 100 has started the year on a positive note. The UK's benchmark stock index has surged above the level of 7337 seen on February 24th, 2020, before the Covid-19 crisis sent global markets into one of the worst periods in history. After the bank holiday break, the FTSE 100 gained more than 1% yesterday, moving 50 points beyond where it was just before the pandemic crash 22 months ago. Over the last 6 months, the index has risen over 5% and over the course of a year, it is up 14.5%.
The positive driver behind the surge higher recently is the growing evidence that the Omicron coronavirus variant may cause less severe symptoms and the wave of hospitalisations and deaths has not yet unfolded. Based on this, PM Johnson has taken the view that Plan B in its current form is sufficient, and no further restrictions are needed.
Markets fell into a bear market at the fastest ever pace in February 2020. Fortunately, the recovery from the March 2020 lows has also been rapid. A combination of extraordinary monetary stimulus from central banks has resulted in US indices trading above February 2020 levels and making new all-time highs on a regular basis. US big tech was a clear winner of the pandemic response. The UK’s FTSE 100 is unfortunately weighted towards Blue Chip companies that are predominantly in Oil, Gas, Mining and Financial Services and the lack of big tech names like we see residing in the S&P500 and Nasdaq have slowed the pace of the FTSE 100 recovery.
Yesterday across the globe a cyclical change occurred with tech being sold off and the likes of transportation, O&G exploration, energy, and hospitality got a boost. The corporations focused on travel like BA owners IAG were down, which is conducive to lockdowns and travel restrictions still being imposed while Omicron rips through nations.
Today the Ocado Group Plc is helping push the FTSE 100 to new highs. This rise in Ocado’s share price comes on the back of the wealth and asset management firm Berenberg who raised their analysis to Buy, from Hold. The firm reckons now is an attractive entry point into a "long-term winner", hence the upgrade.
On an H4 chart, the Bulls taking the stairs comes to mind, as we can clearly see around 7360-7380 has been tested for significant support and 7460 has been tested for the most recent support following the break above 7500. The daily time frame shows that there is increasing momentum to the upside, which is signalled via the 20, 50 and 200-period EMA’s diverging and steepening. Momentum often leads the price action and if there were a catastrophic event the daily 200 EMA has acted as significant support before and that makes 7080 another floor for now.
The ActivTrader sentiment indicator shows that an extreme percentage of traders are trying to short the index on the platform and as discussed earlier, anyone who was short from the start of the pandemic has now been squeezed back to zero, so will likely puke their position if they have one still. With fewer sellers, or an increase in stops being triggered there is a likely hood of a squeeze higher.
With the Daily and higher time frames pointing to an upside continuation, I would be looking to buy new highs and breakouts or pullbacks to a support level. Just like we saw before the start of the London session today. Assuming 7500 holds before the London close and the FOMC meeting minutes release tonight, I would consider using the hourly time frame to look for a momentum break higher towards 7600 with a Stop Loss below the 7460 level. This would currently be a risk to reward of 1:1 so the intention would be to move the SL to BE or take half off if the price hit the 7600 level and then try and hold for around 7675 and a risk to reward ratio of 1:2.
For confirmation of a rising UK FTSE 100 you could also look to the Brent crude markets for direction.
The price of Brent on an intraday time frame has a close relationship with the price of an intraday move in the FTSE 100, for the most part, and as previously stated, some of the index’s largest cohorts are in the energy sector. Brent over the last 3 months has risen around 1% but over the course of a year has moved more than 50%, which would have helped the UK FTSE 100 to also grind higher.