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Market Analysis || 7-5-2020

The UK 100 started the week on a shaky note after US President Donald Trump talked up rhetoric on possible sanctions on China the previous Friday over their handling of the COVID-19 outbreak. The US President has consistently blamed China for the outbreak and spread of COVID-19. The talk of placement of new sanctions on China against the backdrop of a depressed global economy clearly spooked the markets and got the UK 100 opening with a downside gap on Monday. However, the index was able to rally to close higher on the day.

Price action on the UK 100 is on the bullish side this Thursday along with those of other global stock markets on positive trade balance data from China which showed an increase in overall trade balance and US-denominated trade balance data. Chinese customs authorities are reporting a rise in April 2020 exports by 3.5%, which far exceeded market expectations of a 15.1% drop. Trade balance stood at 318 billion, up from 139 billion in the previous month and well above estimates of 82 billion.

The positive sentiment this is bringing to the markets stems from the belief that the data could mean a quicker-than-expected recovery of the Chinese economy, which could push global growth as a consequence.

The top gainers on the UK 100 so far this week are:

  1. a) Ocado Group (12.54%)
  2. b) Rsa Insurance Group
  3. c) Experian
  4. d) Spirax-Sarco Engineering
  5. e) Aveva Group

Hikma Pharmaceuticals and AstraZeneca are in the 8th and 9th positions with gains of 4.62% and 4.44% respectively.

This week’s losers on the UK 100 are as follows:

  1. a) Carnival (-17.34%)
  2. b) Tui AG (-15.91%)
  3. c) International Consolidated Airlines Group S.A (-15.12%)
  4. d) Rolls Royce Holdings (11461%)
  5. e) EasyJet (-14.46%)

Plane engine maker Rolls Royce has announced it would be cutting jobs as the aviation sector continues to see a 95% passenger traffic globally. EasyJet is locked in an investors battle, as the majority shareholder is pushing for a crucial vote that could see the ouster of four key board members (CEO, Chairman, Chief Financial Officer and another director). Investors are not pleased with the situation and are selling EasyJet aggressively.

Technical Outlook for UK 100

All told, this has been another week of recovery that has taken the UK Index to levels that are slightly above where they ended last week. The downside gap on Monday breached the ascending channel, but buyers quickly sent the UK 100 back into the channel and above the 5811.96 resistance. The index needs to post a 3% penetration close above this resistance to confirm the breakout, which then targets the next resistance at 6219.31 (previous high of 10 March and 50% Fibonacci retracement from the swing high of 20 January to the swing low of 23 March).

Supporting this breakout is the candlestick pattern formed by the weekly candles of last week and this week. If this week’s candle closes as it is, both candles collectively form a bullish engulfing pattern.

UK 100 Weekly Chart: May 7, 2020

On the daily chart, the price action for the day has sent the UK 100 back within the ascending channel. The expectation is for price to trade within the channel towards the upside. This view will remain intact if the 3% penetration of the weekly candle holds. This is expected to take the price beyond 5811.96. If the daily candle pushes towards the opposing border of the channel, this will bring it into conflict with the resistance at 6219.31 (50% Fibonacci retracement level).

UK 100 Daily Chart: May 7, 2020

If the UK 100 breaks above this resistance, the door towards the next target at 6453.06 (28 February lows acting in role reversal) will be flung open, with the 61.8% Fibonacci retracement at 6536.87 hanging overhead.

On the flip side, a successful breakdown of the channel opens up opportunities to retest the downside targets at 5437.10, 5275.79 and 4981.9. The 4755.38 support (lows of 1 August 2011 and 23 March 2020) remains a distant possibility at the moment.

Bulls

Bulls would need a break of 5869.96 (38.2% Fibonacci retracement level) to usher in further advance on the UK 100 .

Bears

A breakdown of the 5811.96 takes out the channel’s lower border and allows for a continuation of the medium-term downtrend.

  • Prices to watch: 5869.96 (bulls) and 5811.96 (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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