The FTSE 100 index is down by more than 1.25% today as traders worry about Covid and America’s election risks. Other UK indices, including the FTSE 250, FTSE All Share, and FTSE Small Cap have all fallen by more than 1%.
Investors in the UK and rest of Europe are concerned about the rising number of coronavirus infections. In the UK, the number of cases has jumped to more than 918k. Yesterday, the government confirmed more than 22,000 cases. The same trend is happening in other countries like Germany, Spain, and Belgium.
The FTSE 100 is falling for several reasons. First, the surge in cases is raising the possibility of another lockdown, which will affect demand for most companies. Notably, travel-related companies like Rolls-Royce, IAG, Whitbread, and Intercontinental Hotels will be at risk.
Second, the wave will lead to a slowdown as the UK economy starts to recover. Third, it increases the likelihood of another stimulus at a time when the country’s public debt has soared. Finally, if the government decides to have a lockdown, many companies in the UK will be closed to reduce the spread.
Only five companies in the FTSE 100 are rising today. Croda International, Antofagasta, Next PLC, Ocado, and Reckitt Benckiser are the only ones rising. On the other hand, the worst-performers are Rolls-Royce, British Land, Intercontinental, and British Airways. Rolls Royce share price has dropped by more than 64%.
In the past few days, I have written about the FTSE 100 and warned that it would drop further. That was because its descending triangle was nearing its confluence level. Today, the index has moved below this support level and is now at £5588. The index is also slightly below the 25-day and 50-day exponential moving averages. Therefore, after breaking out, I suspect that bears will now target the 23.6% retracement level at £5,435. On the other, a move above £5787 will invalidate this trend.
