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Market Analysis || 24-4-20

The FTSE100 is slightly lower this week, after the sudden collapse of crude oil prices on the WTI benchmark pressurised stock markets around the world and brought on severe risk aversion. However, the gradual recovery of crude oil prices as well as a Claimant Count change that was actually not as bad as analysts had feared was able to spur some buying sentiment on the FTSE100. The FTSE100 is now trading at 0.5% lower as a result.

The key issue confronting small businesses and listed companies on the UK are the business conditions that have been impacted by the coronavirus. The manufacturing and services PMI numbers were worse-than-expected and the retail sales released this morning were also downbeat. These news releases point to a worsening of business conditions and with lockdowns being extended, it is unlikely that those numbers would improve anytime soon. A pointer to this is the news that the Transport of London would furlough 7000 jobs and access the retention scheme of the UK government in an attempt to cut costs.

The top gainers on the FTSE100 this week saw limited gains not exceeding 11%. Stocks in this category include:

  • Polymetal International (11.41%)
  • Taylor Wimpey (10.33%)
  • Persimmon (10.21%)
  • Barratt Developments (8.21%)
  • Berkeley Group Holdings (6.75%)

Stocks such as BP and Royal Dutch Shell were still able to make it into the winners’ chart, as oil stocks were able to bounce back following the threats by US President Donald Trump to sink any Iranian ships that engaged US warships. BP and Royal Dutch Shell were up this week with gains of 3.8% and 2.91% respectively.

Luxury brands continue to bear the brunt of the coronavirus pandemic, as several of them ended up on the losers’ chart. Tui AG (-15.49%) continues to lead the pack for the 2nd week in a row.

Other losing stocks for this week on the FTSE100 include:

  • Burberry Group (-11.93%)
  • Easyjet (-11.46%)
  • Bae Systems (-8.67%)
  • Meggitt (-8.27%)
  • Pearson (-8.06%)
  • Rolls-Royce Holdings (-7.73%)
  • Legal & General Group (-7.31%)
  • Informa (-6.59%)
  • International Consolidated Airlines Group S.A. (-6.43%)

Technical Outlook for FTSE100

The FTSE100 continues to find the 5811.96 resistance level a tough nut to crack, having spent the latter half of the week trying to recover from the losses of Monday and Tuesday that were induced by the collapse of the May 2020 WTI contract. Price continues to trade close to the 38.2% Fibonacci price level, which is located at 5880.92. The weekly candle indicates a pinbar pattern, which together with last week’s doji, indicates that there may a major price move soon as soon as the fundamentals allow it.

 

FTSE100 Weekly Chart: April 24, 2020

The pinbar is resting on the current resistance. Together with the doji candle of last week, we see a picture of price forming lower highs while price is forming higher lows.

The daily chart reveals a clearer picture of what the weekly candles of last week and this week are indicating. Price action is now trapped within trendlines that connect lower highs above, and higher lows below: a symmetrical triangle pattern. Typically, a symmetrical pattern is a continuation pattern in which the price exits the triangle in the same direction as it entered the pattern. If we are to follow this technical expectation which happens more than two-thirds of the time, then we can expect a breakdown of the triangle, targeting a price projection of 5275.79. This price projection corresponds to the measured move that is the same as the base of the triangle. This breakdown would have to first contend with the support at 5418.85 (23.6% Fibo retracement) and below the pride projection point, further decline of the FTSE100 can expect to be challenged by support levels at 4981.9 as well as 4755.38 (lows of 1 August 2011 and 23 March 2020).

FTSE100 Daily Chart: April 24, 2020

On the flip side, it is possible for the triangle pattern to act as a bottoming pattern, resulting in a trend reversal. This occurs about 20% of the time and if such an event were to happen here, we could expect price to target the resistance zone which has the 6191.51 price level (50% Fibonacci retracement) as the floor and the 6228.08 (highs of March 9/10 2020) as the ceiling. Further advance could target 6453.06, where previous lows of February 28 and March 2 are located. Continued advance may also target 6536.87 (61.8% Fibonacci retracement).

Bulls

Bulls would need a break of 5846.16 (highs of last Friday, as well as Monday and Tuesday this week) to usher in further recovery on the FTSE100, as this move breaches the triangle to the upside.

Bears

A breakdown of the 5611.73 (this week’s lows) would breakdown the triangle and allow bearish price action.

Prices to watch: 5846.16 (bulls) and 5611.73 (bears).

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.


Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

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