📈FTSE 100 - Here's where we are going next in August 👇This is a chart of the FTSE100 on the daily time frame, each bar is 1 day of price action. In this post I talk about the price action of July, bull and bear cases for the FTSE and important levels to watch out for if you're looking to add to positions.
The last time I posted about the FTSE I said it was important that we do not break the 6,000 level, and if we do it becomes more probable that we see the 5,000 level again.
A clear break of the 6,000 level would indicate that the March rally was a dead count bounce.
On Thursday the FTSE broke the 6,000 level.
On Friday it back tested the 6,000 level as resistance, what was once support has now become resistance (wick on the last bar touched the 6,000 level before selling off sharply.)
It convincing broke that level showing sellers wanting to get out.
What has happened in the UK in July?
Let’s start with UK’s biggest bank Lloyds which is a barometer for the financial economy (I exl HSBC as it’s a multinational, but if you take a look at all banks, they are breaking major support levels across the board).
From March till July, Lloyds was holding strong above the 30p mark a huge level in place since 2008 GFC, this week it’s earning came out much worse than expected and it broke major support sitting at 26p.
Now over to energy – BP.
Like Lloyds, BP was keeping its head above water at 300p a historical level of importance for over a decade of price action.
This area acted as support all the way back from 2010 and 2015, this week it fell through the floor and now sits at 275p.
BT was keeping afloat above the 115p area for months and now is at 98p, lowest price in a decade.
Taylor Wimpy major level was 130p in play from 2016 and 2018 where it bounce off nicely, for months it was using this level as support, it now sits at 118p.
Across a wide range of sectors, many UK large businesses have broken major support levels that have supported them for many years, suggesting that the overall mood is bearish and that in the next few months we should expect more downside.
Why did we see a sharp amount of selling the last few days? Some things to think about.
On Friday UK ended its 80% furlough scheme, now it’s only gives 60% with employers putting up the other 20%. The question is how many employers are going to put up the 20% with their profits slashed.
I don’t think it’s any surprise that we see the break of support on the Thursday, two days before the scheme was being cut, I assume that investors were waiting to see if this would be extended before making their way to the exit.
On Friday Brois slammed on the “breaks” for -opening the UK, with some parts of North England under some type of lockdown, slowing down the recovery. Casinos, bowling alleys etc opening are also delayed for at least two weeks. Borris also stated another nationwide lockdown is not off the cards.
No trade deal with the EU does not help local UK businesses, and the strengthening of the GBP is dragging the FTSE down as it makes foreign investment into the FTSE less attractive.
In my last FTSE post I stated that I expected to see many more layoffs and that has come true, not a day goes by without a major firm reducing staff.
Companies all over the globe are figuring out how to do more with less, and when they figure that out it will result in job cuts.
Mortgage holiday and credit card holidays are coming to an end shortly, signalling more pain for banks and reasons to exit.
Now let's focus on the bull cases for the FTSE100, if you have your own bull/bear cases please leave a comment below so we can share ideas.
The UK gets the virus under control and we see a v-shape recovery, or a vaccine.
The bulk of employers pay 20% of the furlough for staff staying at home and unemployment does not increase, and by October we are back to normal (that's when the scheme ends), or the scheme is extended.
UK gets a great EU trade deal.
The first area of support on the FTSE is minor support at 5,700~, we can see it acting as both support and resistance from March-July, and if you zoom out over 10 years, this level has acted as S/R in the past, I expect buyers to step in here, but will there be more buyers than sellers?
If we cannot hold the 5,700 area, then it’s most likely that we go and re-test the 5,000 area where I expect there to be a lot of buyers waiting.
If you’re holding FTSE funds/ETF and are thinking about adding, these are important levels to watch out for to average in.
Can we see the FTSE100 break above the 6,000 level next week?
Yes, it can.
If the FTSE goes upward of 6,000, I would like to see a huge green candle as that shows that buyers are stepping in, I would then like to see the FTSE close above 6k for several days, making the break below 6,000 a bear trap. If that does not happen, then we can expect more downside to the FTSE 100. Looking at the RSI buying moment is weak and shows that the bears are firmly in control right now.
Have a question? Then leave one below.
