The FTSE 100 follows the US markets higher but can it sustain these gains?

The FTSE 100 is trading above the 6,500 points this morning boosted by the Fed’s bullish views over the domestic economy last week. One may wonder what does the Fed have to do with the UK index but as I have explained in my previous notes the correlation between the global stock indices is high in this new age and area.

The Fed expressed their optimism over the domestic job growth and durability of the economy to continue progressing without any added stimulus. It goes without saying that the US stock markets benefited from these comments and dragged the FTSE along with them.

So the question now is whether the FTSE can maintain its highs and possibly go even higher. The answer is not that simple and has to do with many things, certainly the bias of the current uptrend is to the upside even though this morning the index is on a correction lower but whether the momentum can be sustained is another discussion.

Personally I wouldn’t be surprised if the FTSE corrected even lower with the 6,400 points area coming into focus. The PMI reports scheduled for release this week are expected to show a mild slowdown across all sectors which means that all bets are off since a surprise can’t be ruled out.

At the same time we have the Bank of England’s Rate Decision mid-week and even though expectations are set for no changes on the central bank’s guidance there is a possibility for something new. With the Fed done with their QE program it is possible that some members of the UK Monetary Policy Committee might want to signal something different.

So to sum it up, I think it will be an interesting week ahead, the FTSE is on a correction course this morning but it’s exactly this lack of certainty in direction that leaves room for doubts. I would suggest that you look to play the ranges in the UK index this week, my pivot point lies at the 6,475 points and any moves lower should drive us to the 6,400 points support.

Otherwise, if the FTSE holds above the 6,500 points then we could see more gains towards the recent highs. As always keep your trades short and focused and avoid being dragged into longer term bets for the time being.

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