Footsie Fortunes

LAST week Alan Greenspan, the chairman of the US Federal Reserve, delivered several statements on the US economy, and as always failed to disappoint with a broad range of mixed signals on the timing of interest rate rises in the US.

The message seemed to be that rates would be increased as and when necessary, i.e., not necessarily now!

These statements lifted the world's stock markets, but many analysts are still debating whether higher interest rates will be good for the stockmarket ... or not.

The uncertainty is whether higher rates indicate the economy is extremely healthy, with companies reporting 'bumper' profits, or whether higher rates will drain money out of the market towards investments with higher yields.

Nobody is doubting that the economies of the UK and US are growing, and with the likes of BP and Tesco reporting outstanding figures recently, the market seems to have good fundamental foundations – but what about the technicals?

The technical picture looks fairly good also. The FTSE 100 index has remained firm throughout the last week with a couple of attempts at the 4600 level. However, it has yet to close above the 4580 level of resistance discussed in last week's commentary.

If and when the index breaches this resistance level, the objective move is up to 4680, which has dual significance. First it is a key Fibonacci retracement level from the bear market move from 6950, back in early 2000, to the lows of 3277 in March of last year.

Second it is the upper resistance line of the bull channel which has been in force for the last 11 months.

The trend is up and both technical and fundamental momentum suggest we may well see these resistance levels. Major support of the uptrend sits at the 4380-90 area, so failure to sustain these levels may resulted in retracement of up to 200 points.

Footise 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