Strategists at Capital Economics are projecting that the FTSE 100 index could stage a gradual recovery towards 7500 within the next two years, citing the expected economic recovery in the UK.
UK equities have done well in recent weeks, enabling the FTSE 100 to attain pre-pandemic highs. Capital Economics cites the FTSE 100’s composition and favorable valuations as factors that puts it in good stead to continue a gradual recovery towards 7500.
The FTSE 100’s weighting is tilted towards companies whose businesses were impacted by the pandemic; materials, mining, energy, financial and consumer-oriented sectors. These sectors are all rebounding with the onset of coronavirus vaccinations. Recovery of stocks listed in these sectors are expected to lead the FTSE 100’s charge towards the “7,500 by the end of 2021 and to 8,250 by the end of 2022,” according to Capital Economics.
The FTSE 100 hit pre-pandemic highs at 7042 recently following the break of the ascending triangle on the daily chart. However, there have been two corrective moves to higher lows, as the price tries to achieve the projected measured move. The corrective move towards the ascending trendline that connects the lows of the price action of 2021 met rejection and a strong bounce.
This bounce off the trendline that takes out the 6964 resistance allows the FTSE 100 to renew the push towards bullish continuation. The uncapping of 7048.8 allows the index to form a higher high that maintains the uptrend recovery. Following this occurrence, bulls are expected to target the 7116.7 resistance barrier (low of 24 February 2020), with 7211.7 (25 February 2020 high) forming an additional target to the north.
A decline below this line targets the 6801 price support, with 6700 and 6607 coming into the picture as additional downside targets. This outlook truncates the bullish outlook for the index in the short term.
