Why FTSE 100 needs a miracle

We'd given criteria for a possible drop to 6,100 in our feature at the start of this week and, to be honest, April had finished with a fairly optimistic note. So, it was with horror we watched the FTSE 100 scraping the bottom of the barrel all afternoon at the 6,100 level.

Despite neither the FTSE nor FTSE Futures breaking below our 6,100, the precision of the drop target worried us as, had there been some hidden strength, the market should have bounced at 6,100. Rather, the index behaved like a fly hitting one of these sticky fly traps - unable to take off but making a lot of noise about it.

The situation now is of weakness below 6,100 leading to an initial 6,070 with secondary, if broken, at 6,023 points. While both aspirations may sound fairly harmless, it's important to remember the market has broken its immediate red uptrend (see chart below).

This results in the situation where we're viewing 5,750 as the ruling drop attraction currently. The FTSE needs to better blue - currently 6,255 - to rubbish such a potential.

The chart does offer a straw of hope at the 6,023 level, if for no other reason than that folk will look at the lows of March and hope a "double bottom" has happened.

Reasons for a miracle

Realistically, we now need to start looking for reasons why the market may experience a miracle recovery above 6,255 and into relative sanity. Normally we'd hope to view market movements since the start of the month and pronounce, wisely, that the immediate downtrend is at "x" and only a movement of "y" will beat it.

Unfortunately, during the session on 4 May, the immediate downtrend was at 6,136. The market bettered it for 30 minutes, then once again plunged to the 6,100 level. As a result, we're forced to measuring movement strengths.

Near-term, if the FTSE betters 6,153, it is supposed to achieve a useless 6,161 points which, if bettered, allows for 6,182 points. The important thing about this series of numbers comes if our 6,182 is exceeded. Such an event will tend to confirm any bounce has real strength, allowing us to speculate about a further rise to 6,253.

Ironically, this does not take the market to safety, but only to the edge, a point where we need to re-examine our tea leaves. If the FTSE were indeed to suffer such a recovery, we would tend to anticipate some future strong movements.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.