The FTSE 100 has hit new highs in May but the future direction is still unclear because it has started to trade in a very narrow range. This trading range is roughly between 4300 and 4500, give or take a few points, so there should be a good trading opportunity when the price breaks out of this range.

The most likely scenario (in my opinion) is that it breaks below 4300 because we have seen the price rise all the way up from 3460 without any real pull-backs along the way. If it does fall below 4300 then we could realistically expect the price to fall all the way back to 4000 because this would represent a 50% fibonacci retracement. If it was a major pull-back then it could even fall to the 61.80% retracement level which is approximately 3865, but I think this is highly unlikely.

The alternative scenario is that the price breaks above 4500. In this instance the potential upside is a lot harder to predict. However if we again use fibonacci analysis and look at the long-term high and low points, then the immediate target would be 4715 (representing a 38.20% retracement) and further targets would be 5106 (50%) and 5498 (61.80%).

Whatever happens the breakout from this range is likely to be very significant and should signal the start of a new trend.

 

 

Filed under: Indices

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