Footsie fortunes

THE FTSE 100 opened the year at 3940 and if all things stay quiet for the next day or so, the market will close almost 13% higher.

This is a return not to be moaned at, especially given the consistent buy and sell levels the channel trend has given us over the past nine months. It is a reward for weathering the aggressive lows witnessed in the spring.

I certainly don‘t need to remind you of the low the FTSE experience in March, when it bottomed out at 3277. That was almost 17% down on the first three months of the year.

For more active investors or traders, the FTSE created some fantastic opportunities.

Following markets by using simple trend-lines is a basic method of technical analysis, but it can also be the most effective method - to coin a phrase 'the trend is your friend'.

Looking to the week ahead, we are now sitting on the major channel resistance line, which I suppose can be compared to the San Andreas Fault, which showed signs of breaking during last week's earthquake in California. Like any major fault line, major resistance, when released or broken results in a dramatic move.

Currently trading around 4450, the FTSE is just five or 10 points away from the key resistance area at 4460. If the FTSE closes convincingly above 4460, we will have seen a break-out from the seven-month channel, with a target rally or about 200 points.

However, take caution. This week, volumes are so thin that market makers have an opportunity to effectively manipulate price moves with large orders that they place in the market.

So any break on the upside will have to be tested in the market following the holidays on January 5. A sensible approach would be to hold back from placing new trades until next week.

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