Footsie Fortunes

AT the beginning of last week, the FTSE 100 broke above its major resistance level, which has been a prominent theme on the technical analysis watch list for several months. So this break has considerable significance. The resistance level that was breached was 4,450 and it occurred on the Monday of last week, when the market closed at 4,457.

So what does this break mean for the FTSE 100? Well, when a major resistance line is breached, you expect the move to continue in the same direction, and sure enough the Footsie made further gains for the remainder of last week and has maintained those gains for this week - so far!

It is not unusual for a market to retrace some of its steps following a technical break of this nature, so the FTSE 100 may well drift back towards its break out level at 4,450 before moving higher again. If the market does move back to the 4,450 area, this could present a great buying opportunity.

The expected upward move, however, is to 4,670. This still leaves 150 points of potential upside before we meet further significant resistance.

Our analysis suggests you should look to buy stocks now and take some profits if the market nears 4670, while also re-evaluating the market at that time.

If the market retraces its steps and continues below the old resistance level (4,450), which on a break becomes a level of support, then any bets on further rises should be closed as such a move would suggest that the break out to the upside has failed.

Footsie Fortunes is written by Simon Brown of Quantigma - a firm specialising in tools for technical analysis. It is regulated by the Financial Services Authority. For information about courses in technical analysis, go to www.quantigma.com