21st July - Ftse will retest and overcome 7000
22 July 2013
TECHNICALS:
WEEKLY CHART
The market has paused at the Prior High from 2007.
But note well the pull-back has been strictly limited.
The first support from the band 6000-6086 has held and is driving the market back up to the 6796 level.
DAILY CHART
The detail of the bounce from prior support is clear – prior lows taken out (6160) rising volume on up days, falling volume on down days, Fibonacci retracement resistances all smashed.
The bulls are in charge.
FUNDAMENTALS:
The Fed’s revelation back in May/June that it was on the verge of tapering off its QE3 monthly bond purchases, had a clear impact on global stocks and other asset classes.
After a long recovery rally traders took fright and the FTSE along with the S&P and Japan’s Nikkei suffered sharp reversals as traders fretted the monetary policy cycle was starting to turn.
The fear was that if the Fed and possibly other leading Central Banks began to remove their stimulus now, the still nascent recovery in the US, UK and Japan could stall or reverse.
But the Fed clarified intensions by announcing tapering will only occur if the recovery remains strong and the Fed remained flexible enough to even increase its bond buying if the recovery turned down.
In a bid to re-enforce the message the Fed made it clear it wasn’t reducing it stimulus, but merely not adding quite as much as before. The Bank of England under new governor Carney broke with tradition and announced UK rates would be staying low for a long period and that UK markets were wrong to price in any tightening.
The ECB too told markets it effectively retained an easing bias.
The medicine worked and equity markets began a sustained rally, even in the Euro zone where the debt crisis has again reared its ugly head.
But what is the outlook for the FTSE, when the UK’s largest trading partner, the Euro zone remains in recession and still struggles to resolve the long running debt crisis?
Lets start by looking at the UK economy:
So there are many things about the UK economy to be positive about and this will feed through into the FTSE and drive it higher.
Moreover, the US economy has withstood the impact of the previously much feared fiscal cliff and has had her credit ratting affirmed by both S&P and Moody’s as AAA.
Clearly, as the world’s largest economy a recovery in the US will drag others including the Euro zone better. Additionally, Japan’s economic recovery is moving ahead . So stocks look set to make new highs and we are especially bullish of the FTSE as the UK economy looks set to do much better than many had until recently expected.
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