FTSE 100 Index (INDEXFTSE: UKX) has been having a strong rebound since its March lows. The blue-chip index tracking FTSE 100 companies appears to be gaining strength above the key psychological level of 7500 points. Our analysis shows that the ongoing rally is likely to end soon.
On Thursday, the benchmark FTSE 100 index rose for the 2nd day in a row. At press time, the index is trading at 7,683 points after gaining 0.26% in today’s trading session. It also closed in the green on Wednesday. Considering its March lows, the index is up 6.7%.
The PMI data showed that the UK service firms saw another month of growth. The new business expansion in the service sector remained the strongest in March since the start of this year. The overall PMI reading for March came out at 52.9. Even though the figure was lower than that of February’s PMI of 53.5, it still came above the 50 mark, which is an indicator of growth.
Another factor behind the recent bounce in FTSE 100 Index is the strength in defensive stocks. The drugmaker AstraZeneca share price surged on Wednesday and contributed to an uptick in the benchmark index. However, the negative price action by bank shares remained the biggest headwind for the index.
Despite a strong bounce in the INDEXFTSE: UKX during the past few weeks, a few key levels on its chart point towards a major pullback. The following chart reveals key levels of support and resistance that the index can respect in the coming days. If FTSE 100 Index closes a week above 7,500, then I expect it to retest the 7800-7900 level n the coming days.
Due to the high-interest rates and rising oil prices, my FTSE 100 Index forecast remains bearish for this year. Hence I expect the retest of the 7800-7900 level to result in a major retrace. The invalidation of this forecast will occur if the index gains strength above 8000 points.
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