- Summary:
- The FTSE 100 index has suffered a harsh reversal as investors remain pessimistic about the UK economy because of the rising number of Covid-19 cases
It is a sea of red in London today. The FTSE 100 index is down by close to 2% as all constituent companies slide. The index is trading at £5,830, which is substantially lower than this month’s high of £6,045. Other European indices are also falling, with the German DAX falling by 2.20% and the CAC 40 falling by 1.67%.
The FTSE 100 is falling mostly because of the surging number of coronavirus cases in Europe, which is putting the region’s recovery process at risk. In the UK, the health department confirmed more than 19,000 cases yesterday. This month’s cases have surged from the August’s and September average of less than 1,000.
Other European countries like France and Germany have also reported a sharp rise in cases. This has seen these countries implement a series of strict measures to prevent the spread. In a statement yesterday, Emmanuel Macron said that restrictions will start in Paris and other major cities. The same trend is happening in the UK, where the government recently unveiled the so-called circuit breaker measures.
Rising coronavirus cases is not good for FTSE 100 companies. For example, it means that airlines like British Airways, which is owned by IAG will see little action for months to come. It also means that hospitality companies like Intercontinental Hotels and Whitbread will remain under pressure for months.
On a positive sign, analysts and investors are banking on a Brexit agreement between the UK and the EU. Media reports suggest that Boris Johnson will not abandon talks as he had suggested in September. Instead, the talks will continue since the two sides have made some progress.
As mentioned, all companies in the FTSE 100 index are falling today. Whitbread, IAG, and Intercontinental hotels are the worst performers, having fallen by more than 5%. Other top laggards are Royal Dutch Shell, BP, and Lloyds Bank. No companies are gaining today.
FTSE 100 index technical analysis
The hourly chart shows that the FTSE 100 index nosedived to a low of £5800 today. This point was no coincidence. It was the lowest level on October 2. Also, it is on the same level as the previous third support of Woodie pivot points. The price is also below the 25-day exponential moving averages.
Therefore, while the trend remains bearish, I suspect that the price will go through consolidation at this phase. This may lead to the formation of a bearish pennant or flag pattern. Eventually, in the coming days, the price may drop to the next pivot at £5,730.
The alternate scenario is where the price bounces back and attempts to move to the previous pivot point at £5897.
FTSE 100 index technical chart
