Can the FTSE 100 justify its current levels or are we heading for a major correction?

The FTSE 100 managed to stay above the critical 6,750 points during the past week and was actually able to make another run towards the 6,900 points area. As I mentioned in my last note the Scottish Independence referendum would have been the catalyst behind FTSE’s swings up until the end of the week.

The nervousness among the investors was obvious at the start of the previous week but as we were getting closer to Thursday’s vote it became clearer that the pro-union vote would edge the separatists. The FTSE traded either side of the 6,800 points but after the results were confirmed on Friday the London index jumped to 6,880 points.

However this morning we’re seeing a different picture: the FTSE opened significantly lower and is threatening to break below the 6,800 points barrier. Is this a trip back to reality? It might be. The domestic economy is going well but is it really moving forward in such a pace that would justify the FTSE trading near multi-year highs? I really don’t think so.

And to add to that thought, we know that the Bank of England is going to raise rates soon enough, maybe not by the end of the year, maybe at the first half of the next one but this is a done deal, it is happening. So I do understand that stock markets are looking attractive at this point compared to other capital placements but I also believe that a correction is due.

Again my focus area is located at the 6,750 points, there’s the pivot point in my view. If the FTSE continues to lose ground that fast then it is likely to see a break of this area within this week. Such a break would expose the 6,700 and 6,650 marks which I believe are reasonable targets for the short-term.

On the other hand, if the 6,750 points area holds then I believe we will see a consolidation above this level for the next 4-5 days. However, I remain strongly bearish in my view and even though the markets are sometimes unreasonable and can be unpredictable some things are really inevitable.

To receive my free daily newsletter or to subscribe to my premium NewsletterPro service please visit www.investingbetter.com .