May correction looms for the FTSE 100
Ken Odeluga May 1, 2015 7:28 PM
<p>My reading of UK stock market sentiment is largely the same as it was in late March. I moderately downplay the capability of the run-up […]</p>
My reading of UK stock market sentiment is largely the same as it was in late March.
I moderately downplay the capability of the run-up to the UK election to seriously spook investors in FTSE 100 companies, partly due to the strong multinational character of the UK benchmark.
But the UK blue-chip market isn’t entirely immune to British currents.
Sterling has a visible impact.
However even the main exchange rate with the pound has provided a largely positive input to the UK stock market so far this year.
Cable tacked on about 4% in April, but remained short of highs of February and nowhere near cycle highs of July 2014.
This implied a tailwind for exporters and an additional fillip for consumption amid ‘zero’ UK inflation in March and April.
I agree that sterling will remain the main arena in which election-related market caution is reflected, underlining the balanced case for blue-chip stocks in May.
Essentially, sterling has not recently hindered the FTSE 100’s room on the upside.
However, there were signs that a correction had started as May got underway on Friday 1st.
Therefore, I read the FTSE’s comedown as more of a logical postscript to three consecutive monthly record highs than a reaction to the probably inconclusive UK election.
FTSE 100 chart using 10-day intervals
Key technical factors
- Ascending wedge
- Rising convergence tends to lead eventually to trend breaks
- High/low trend convergence reaches ‘zero’ in mid-June
- Percentage price oscillator may fall back toward range from late May
- ‘Classic’ stochastic crossover
- 7030-7090-encompassing many all-time highs seen in April, should cap gains in May
- With February’s 6949 all-time high pierced late last month, and the trend likely to weaken further, I target 6855/6860 support sometime in May. If it breaks this support line, my next target is 6750.
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