The FTSE 100 has hit the 6,900 points’ highs but now the outlook seems to point lower

Last week I wrote to you mentioning that my view on the FTSE 100 was that the index was due to hit its previous highs and indeed I was proven right. Over the past few sessions we saw the London benchmark making its way to the 6,900 points boosted by the better than expected PMI reports that revealed that the domestic economy is again on a good path of growth.

However, now that the dust has settled and we can take a cooler look on the developments of the past week I think that the outlook has changed. First of all I would like to mention the surprise reading of the Non-Farm Payrolls report, the key metric of job growth in the US. The report printed better than expected last Friday and renewed investors’ conviction that a rate hike from the Fed is not far away.

Now if you apply the same way of thinking on how the domestic economy is fairing recently it’s pretty easy to draw the same conclusion: the Bank of England is becoming increasingly bullish on raising rates sometime within the current year. It might be late 2015 or even early 2016 but the thing that matters is that investors are again debating a higher interest rate outlook.

We know that such an outlook doesn’t bode well for the stock market and I have mentioned this many times in my notes to you. A higher interest rate policy means that money isn’t that cheap anymore and that will take its toll on the stock market and that’s exactly what’s on everyone’s minds at this time.

So taking into account the recent domestic and overseas developments and always keeping an eye out for any unfavorable escalation of the Greek debt negotiations I am conservatively bearish on the FTSE 100 this week. I believe that the 6,800 points is the pivot level and this morning the index attempted to break below it.

If this break holds then I think that the 6,700 – 6,750 points’ area will be the next stop. If for any reason the decline picks up pace then we could see the FTSE 100 diving towards the 6,650 points support level so we need to keep an eye on any fresh news, domestically and from abroad.

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