FTSE 100: Here's how to determine a real bounce

FTSE for Friday (FTSE:UKX)

Something interesting happened with our "private" FTSE projection for Thursday as we'd given a bottom target at 7,707 points. FTSE Futures hit 7,707, crucially not going below. Firstly, it tells we were watching the correct trend and second, it suggests we should anticipate a near term bounce.

The big question, as always, is how to define any bounce as "real" and as usual, we've some criteria to unwrap.

The market closed Thursday at 7,737 points and by drawing the immediate downtrend for the last few days, it appears the UK index needs to exceed just 7,755 points to imply the rate of descent has eased. Our inclination is to distrust this and instead demand the market better 7,761 before assuming some gains are coming.

This approach also gives 7,761 as a sensible "stop" level, if chasing a short position.

In the event the FTSE (The index, not futures) actually does better 7,761, we're looking for some growth to an initial 7,784 points. If bettered, our secondary comes in at 7,820 points. Should this scenario trigger, the tightest stop is at 7,729 points though we'd prefer a bit wider.

A major issue becomes available should the FTSE manage below 7,707 points. In such an instance, we're looking at weakness to an initial 7,678 points. If broken, secondary calculates at 7,602 points, along with a very probable bounce.

Have a good weekend. Hopefully this weather continues for the holiday Monday traffic jams!

Source: interactive investor           Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang, Shareprice, or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

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