Will FTSE 100 really fall to 4,900?

Alistair Strang, technical analyst at Trends and Targets, has called the rally up from 5,850 to 6,083. That's a great call given current volatility.

Now, Alistair reveals the next big numbers to look for and the thinking behind them.

The FTSE 100 again. This week we're doing a Big Picture refresh against the major world indices - FTSE, DOW, DAX, AUS, Nikkei 225. Given the behaviour of the markets in the latter part of the last week of January, it feels like the wind has changed, so we need to look for key levels to back up such a naive stance. But first, there's a funny story too ridiculous not to make it to print. And it highlights the dangers of assumptions.

Alistair and Georgia of Trends and Targets arranged to meet at a favourite restaurant on Friday evening as it was their gazillionth wedding anniversary. Georgie had spent the day with her mother shopping, so, after dropping her off, continued to the restaurant and simmered alone for 30 minutes. Meanwhile, in another restaurant 10 miles away, Alistair was getting worried as Georgie was never, ever, late. After half-an-hour he sent her a text message.

Each assumed they were meeting at their favourite eatery - broadly correct. Georgie was at Alistair's favourite, Alistair was at Georgie's favourite. A compromise was reached; they ordered Chinese and met at home!

And this brings us back to the index. It is easy to make an assumption that we know what's happening, but it's probably best to search for proof. Firstly, here's the headline number against the FTSE 100. There's now a strong argument it wants to bottom at 4,900 points, a seriously dodgy assertion given the performance of the last few days. Only when viewing our master chart does the theory start to gather a degree of sense.

What we've done is draw three lines from each low of the FTSE's historical crash. To discuss the 2003 one first, we have three red lines which the market proved fascinated with. Only when the final red line was broken for the last time did hope vanish, resulting in the gory days of 2009. Importantly, this sort of thing happens with shares too, and is fairly reliable.

History, it seems, is repeating itself. It must be remembered the market does not move due to charts, all charts do is map how humans react to given forces. We've three vivid red lines since 2009, but now, despite the growth experienced since January 21, we'd be justified in "bricking it" if the FTSE were now to fall below 5,662 currently.

If working on the basis that humans will behave once again the way they did previously, now would be an excellent point to open a short position, as we're pretty comfortable with the given criteria provoking 4,900.

The funny thing is that, back in 2008, when this dance last occurred, the FTSE grew nearly 600 points before falling off the cliff and through the red line.

This, obviously, is just a theoretical concern, but one which should be taken seriously. On the other hand...

Should the UK better 6,538, we'd expect the mood to shift from recovery to growth. We'd given a secondary target to clients of 6,088 on Friday, not for a minute expecting it to be achieved on the day. The FTSE itself managed 6,083 and futures simply breezed past our target.

Some hope entered the picture and, despite the probability of the FTSE opening up before spending the rest of Monday suffering the blues and drifting down, the market did outperform our ambitious target.

If strength is indeed present, anything now above 6,088 on the FTSE is expecting a trend toward 6,190 with secondary at a longer term 6,371. The actual FTSE 100 (not futures) needs to fall below 5,925 to drop out of the immediate uptrend.

Longer-term, there is a seriously important number we need bettered by the UK and it's at 6,538. Basically, should the UK better this level, we'd expect the mood to shift from recovery to growth, but, given fluctuations in the last few months, goodness knows if we shall see it.

In summary, things feel good, but the market still has a bit to go. We dare not assume a bottom is "in" unless the FTSE betters a near term 6,233.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.