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Can the FTSE 100 take out the mystical 7000 level?

Back in 1999 traders and investors both small and large looked on in expectation for the magic 7000 level to be breached on the FTSE 100.

So with the millennium coming to an end and with city workers partying late onto the night at their Christmas bashes to Prince’s 1999 little did we know that the astronomic move in the FTSE was done for at least 15 years?

The so called millennium bug at the time had businesses large and small worried that their computers would stop working on January 1st. This fear fed into trading volumes which were thin even for the party season. In reality this bug was a nice little earner for the hordes of IT contractors working in the City and Canary Wharf.

During these times traders globally had gauged themselves on technology stocks as equity prices for companies that did not have earnings or produce anything of value soared. What was to follows became known as the Dot.Com bubble. As is common with all bubbles those unfortunate souls left holding these assets when the crash eventually happened got badly burnt.

So it was to be that the FTSE 100 which put in a cyclical high in December 1999. There were attempts to retest the high in March and September 2000 but this price action ended out as false moves that sucked in Johnny come lately to the party. What happened next was a decline that wiped out the majority of the gains of the prior bull market.
Large cyclical down moves are usually followed by opposite up moves and this happened in from 2003 to 2007. At one point in October 2007 it looked like the FTSE 100 would take out the 7000. However this came at a time when the global financial crisis of 2007 – 2008 was just beginning. The FTSE 100 began to decline and the move lower accelerated as I watched Lehman employees walk past me in Canary Wharf holding in their arms boxes that contained their belongings and the odd staple gun.
This leads us onto the present day. The FTSE 100 as I write is once again approaching the 7000 level. Is it a case of ground hog day or will the FTSE 100 overcome its nose bleed and break what has now become a mystical and psychological barrier.

To try and assess the entire fundamental argument is a difficult undertaking however taking a look at UK PLC it would appear that the economy is performing strongly. Furthermore with 2015 being an election year and interest rates at record lows the timing has never been better for traders to push the FTSE 100 above this barrier.

From a technical perspective the FTSE 100 has over the past two months put in strong support by what can be seen as the tweezer bottom. Furthermore the price action closed above the high of the October 2014 isolated low candle and currently trading above all its major averages.
In terms of traditional indicators the ADX / DMI has plenty of room to move higher however the Stochastic does look like it wants to diverge negatively. However the action on the Stochastic has given multiple false signals which could indicate that the readings being given are imbedded to the long side.

For sure traders have long memories and will try to short this level. Therefore taking positions be it long or short at these levels could encounter a great deal of market volatility.

I would like to see a breach of the 7000 level as confirmation that a bigger up move is underway and then choose entries off a lower time frame by buying into weakness.

Alternatively I would focus on lower time frames and choose directional momentum plays in either direction until they stop working.
For sure this is an exciting time to trade United Kingdom’s premier benchmark index.

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. ACFX does not take into account your personal investment objectives or financial situation. ACFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by an employee of ACFX, a third party or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of ACFX.

Thursday, 26 Feb, 2015 / 12:27

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