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FTSE 100: Too Many Barriers To Overcome

ByThierry Laduguie
Published 01/12/2014, 07:51
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The FTSE 100 will open lower today on the back of weaker commodity prices. On one hand the economy is not firing on all cylinders, on the other the central banks are ready to act with more stimulus. It's a familiar story and we must wonder why after so many interventions by the central banks the economy is still weak and inflation has not surged.

It would appear that the money created by the banks has not found its way into the real economy. Crude Oil is still falling and the latest Chinese manufacturing PMI came in at 50.3 and below the forecast of 50.5. Metal prices are falling too and gold tumbled after Swiss voters rejected proposals to boost gold reserves in a referendum.

The FTSE is exposed to commodity prices therefore and as long as commodity prices continue to fall, the UK index is unlikely to rally. But we are in December, seasonal influence is positive at this time of the year and anything is possible. Last year the FTSE declined until mid December, the Santa Claus rally happened in the last two weeks of December. We could have a similar scenario this year, the FTSE could decline in the next few weeks and then go up or sideways during the festive period.

The FTSE's high [6773] was recorded more than a week ago, the index is above the 200-day moving average and the rally is running out of steam. This 200-day moving average was broken in September so this line is now acting as resistance. We have many barriers above 6700; the 200-day moving average, the fact that the index became overbought for the second time, the 78.6% retracement and falling commodity prices.
FTSE 100: Daily Chart

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