Interactive Investor

FTSE 100 stalls short of major level

7th October 2015 17:14

Lee Wild from interactive investor

A five-day winning streak that added as much as 519 points, or 8.8%, looked to have run out of steam Wednesday. After hitting a seven-week high, the FTSE 100 turned tail shortly before the end of the trading session, and just hours before the Chinese stockmarket reopens after the Golden Week public holiday.

Traders have been uber-bullish in the absence of interference from China, although the rally has, in part, been driven by speculation about further stimulus there. Understandably, some investors are choosing to duck out of the market with fat profits intact, just in case.

Airlines have hit turbulence following an amazing run. Carriers like International Consolidated Airlines and easyJet have been a double play on oil as lower fuel costs benefit both profits and consumer incomes. But in a research note, Credit Suisse waned that the sector is overbought, and that if oil prices stabilised or staged a modest recovery - which they have - "one of the most significant tailwinds airlines have recently enjoyed would fade away". They're spending more than before, too.

Fuel-hungry cruise operator Carnival is listing slightly, too, and travel operator and airline owner TUI is flying low. SABMiller's rejection of another offer from AB InBev, this time worth £68 billion, had the shares chased up 2%. They’re still well below the £42.15 offer price, though, and this is a straight bet on whether AB InBev will bid again. Tesco finished a tad lower as half-year profits underwhelmed, although the sales decline does at least appear to have slowed.

Elsewhere, interest in housebuilders like Persimmon and Taylor Wimpey has also subsided. That offset an advance by the miners, including Glencore, which traded as high as 131p, meaning its share price has doubled in just nine days.

The blue chip index gave up its entire 70-point gain late Wednesday before ending the session up 10 points at 6,336.

But is the rally really over?

We'd heard that there could be trouble around the 6,400 level, but that a break above the big figure could lay the foundations for another major surge.

To find out, we got in touch with our technical analyst friends at Trends and Targets. Here's what chartist Alistair Strang had to say:

The circled area on the minute by minute chart below at the start of August was the market, literally, defining the trend. This sort of thing happens from time to time and with software will have trouble allowing the FTSE above the blue line. As a result, I expect to see the FTSE gapped up at the open tomorrow or Friday if the intention is to keep this cycle heading to 6,750.

It's mad, I know. But for no other reason than it exists, that blue line, currently at 6,417, is going to cause an issue.

Well, Alistair got it right, and after hitting 6,396 the index hit reverse. The decline mirrored a trend in the US where the S&P 500 gave up a 20-point gain, failing by a fraction of a point to hit 2,000 for the first time since 17 September.

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