FTSE 100: Strong Resistance Above 6800

January was a negative month for the S&P 500. The FTSE however, closed up in January but failed to break above the previous high of 6905. In an unusual move, the UK index outperformed the S&P, and because 6905 remains intact chances are the UK index will resume its decline.

The global economy is struggling to deliver what is expected. The worst situation is in Europe and the ECB is running out of ideas. Some clever financial engineering operations by the ECB have failed to boost growth, inflation is falling. On Friday the latest consumer price index in the Eurozone fell more than forecasts. Since Mario Draghi announced the new QE program, stock markets are down. It seems investors have lost interest in the ECB. This change of attitude, if true, means QE is no longer the driving force behind the stock market rise.

China is slowing too, today's HSBC manufacturing PMI came in slightly lower than expected and below 50. There are now fears that the slowdown will spread to the US. Last week we saw a big drop in durable goods orders and on Friday US GDP came in at 2.6%, this number was lower than the 3% expected by analysts. Finally, Greece's new government has stated it would refuse new loans from the EU and the ECB, leaving Greek banks in a situation where they could face funding problems.

In this environment we could see more volatility during February. Last week we saw a number of rallies above 6800, on each occasion the FTSE failed to rise further. As a result 6905 remains intact. It now appears that the FTSE has turned down but the decline from the top is not an impulse wave. The decline is an expanding pattern is five waves which is more commonly seen during a pullback in an uptrend. For this reason there is potential for higher prices in the short term.