FTSE hits new 5 week high as resource and bank shares lead charge Resistance levels near

The FTSE 100 closed at its highest level in the last five weeks, briefly breaking back above the 5400 level in the process, as traders took confidence from the bailout of troubled Franco-Belgian bank Dexia and the pledge by Angela Merkel and Nicolas Sarkozy last night to provide sustainable solutions to the euro zone problems by the end of the month.

The FTSE 100 had been sitting on gains of around 0.8% thanks to a strong mornings performance by mining and energy firms, but it was the start of the US session, where the Dow Jones and S+P both opened to gains of 2%, which helped to spark a second wind to today’s UK stock rally, helping the FTSE 100 to trade above 5400 before some late profit taking forced the UK Index to close at 5399.

Most of the second wind rally in today’s markets was dictated by increased demand from investors for banking stocks such as Schroders and insurers such as Prudential, who both traded near the top of the FTSE 100 leader board as a result.

Investor confidence has increased somewhat from the fact that France, Belgium and Luxembourg came together to bail out troubled bank Dexia. Whilst it is hoped this act will not need to be repeated elsewhere, investors are taking some muted confidence from the fact that leaders have shown an appetite to protect banks through liquidity support in times of trouble. Moreover, with Merkel and Sarkozy pledging to create a united plan to recapitalise banks, there are tentative suggestions that perhaps Europe’s leaders may be getting their act together.

That said, investors have heard strong rhetoric and seen little substance all too often before and so we have also seen some degrees of apprehension to continue buying into a market that has essentially rallied 10% since last Tuesday. Are there many investors out there willing to gamble that euro zone leaders may announce credible and sustainable solutions before they see the proof within the pudding? Considering the fact that many investors remain highly sensitive to both news and data, perhaps not and if so, one questions whether the FTSE 100 has enough firepower to break through resistance levels on the horizon.

The FTSE 100 is now trading near key technical resistance levels to which has triggered previous bearish swings. This is the fourth attempt made by the FTSE 100 to break through key resistance at the 5450 level since early August and another failure at this level could convince investors to downsize risk further in a case of history repeating.