Footsie Fortunes

LAST week the FTSE 100 index showed us just how strong the current channel up-trend is. The technical formation has carried the index up by over 500 points in the past six months, and shows no signs of failing private investors just yet.

Monday's losses were merely a result of reaching the resistance level within this upward channel, currently limiting the upside to around 4410.

The most likely outcome is a continuation of this upward move. This trend is a pattern that we see time and time again, not only in the Footsie index, but also in any stock, commodity or other financial market. The pattern resembles a staircase and is called a 'saw tooth pattern'.

This happens in any upward trending market as traders periodically take profits during the rise, pushing the index temporarily lower, before a resumption of the upward trend. It also works in downtrends, but in reverse.

So what can we expect for the index in the coming week? Further selling pressure from profit takers will weaken the Footsie, potentially to as low as 4285.

But remember, this is merely the 'tooth' in the pattern and as long as it doesn't penetrate the lower support trend line at 4160, the overall up trend will remain intact, attracting good buying support at these levels and pushing the index back up.

If the index breaks out of the current trend on the upside, a strong break and close above the 4410 level will indicate an even sharper rise is about to occur, initially squeezing the UK index up by more than 100 points to 4525.

So in summary, take profits at around the 4400 level with the expectation that the FTSE will drop back from this upper resistance level.

Any dip in the market can be viewed as a buying opportunity, especially at the 4285 level. The trend is still up, so let the trend be your friend.

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 more, go to www.quantigma.com