FTSE 100 warning levels revealed

You could be forgiven for thinking that a deal between Greece and its lenders had fixed the world's problems at a stroke. A relief rally had the FTSE 100 trading 6% higher within 10 days this month and European bourses up twice as much. But Greece isn't really fixed, and problems have resurfaced in China.

Equities markets are falling again - three-quarters of the Footsie rally has disappeared in five trading sessions - and the blue chip index is less than 100 points from a new six-and-a-half month low. Overnight, China's Shanghai Composite index suffered its largest one-day slump since 2007, down 8.5% to 3,725. That's raised fears that policy measures introduced by Beijing earlier this month in an effort to halt panic selling - including a ban on short-selling and sales by major shareholders - have stopped working.

"The slide indicates that the Chinese authorities are perhaps reducing capital inflows following their frenzied measures to support the stockmarket three weeks ago," says Nigel Green, founder and CEO of financial advisor deVere Group.

"It appears that, unsurprisingly, those measures are unsustainable in the longer-term, that the market is currently vulnerable without government support, and investors remain uncertain of the situation."

(click to enlarge)

Green reckons this latest chapter in the China slowdown story is likely to create volatility in the financial markets until the end of the year. He recommends investors should consider "China-proofing" their portfolios to manage risk and benefit from buying opportunities. That means diversification across regions, assets and industries.

Clearly, any concerns that do emerge about Chinese growth have an inevitable impact on commodity prices. It's why many of the miners -Rio Tinto, Antofagasta, Anglo American and Kaz Minerals - are all lower Monday. And that hurts the leading index.

What the charts say

Our technical analyst friends at Trends & Targets have fed all the numbers into their clever machine and had a stab at predicting where the FTSE 100 is heading next.

"The FTSE 100 needs to fall below 6,435 before we've a panic moment and it's miles away currently. Or maybe not," says chartist Alistair Strang. "For some reason, our software has flagged 6,482 as important and the UK market cannot afford to close below such a point."

"Apparently, if it does, everything politicians have been saying is probably rubbish and the market will crumble to an initial 6,285."

(click to enlarge)

Written before today's stockmarket open, Strang suggested that if the index trades near term below 6,540, "it's fairly easy to imagine weakness to an initial 6,505 with secondary at a precipice skimming 6,443." At 15:00BST, the FTSE 100 is trading at 6,516.

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.