Technical Analysis

An opportunity to trade the FTSE-100

Yoganand D. | Updated on November 15, 2017


Derivative traders can now start trading on FTSE-100, the widely tracked index of the UK equity stock market. The National Stock Exchange launched the futures and options contracts on FTSE-100 during the first week of May for the the first time in India. FTSE-100 Index includes 100 largest UK listed blue chip companies and it constitutes 85.6 per cent of that country's equity market cap. It has given returns of 17.8 per cent on investment over three years.

Trading in these contracts will allow investors to take exposure to UK markets with complete ease. As the contracts are rupee denominated, investors need not worry about any currency risk. Trading in derivative contracts of FTSE-100 will help the investors in portfolio diversification, and can be used to hedge overseas portfolios. The three-hour trading time overlap between the Indian and UK markets can help investors take positions based on any expected news flows from the UK markets. The market lot is 50.

In this week's dissector column we analyse the UK equity stock market index, FTSE-100.

Change of course

The FTSE-100 Index changed its trend upwards in first quarter of 2009, after taking support from a key long-term base level around 3,500. It was on an uptrend until it encountered a significant long-term resistance at 6,100 in February 2011.

The index failed to break through this resistance and instead started to decline in July 2011 and it went in to a free fall in August 2011 due to euro zone debt crisis.

After retracing 50 per cent fibonacci retracement level of its prior up move, the index took support at 4,800 which is apparently a significant support level in August 2011 and bounced up.

The index is broadly consolidating sideways in wide band between 4,800 and 6,100. Within this band the index has significant long-term support at 5,100 and resistance at 5,700.

In March, the FTSE index reversed downwards triggered by negative divergence in daily indicators. Moreover, an important resistance band between 5,950 and 6,000 arrested the index from rallying further higher. Since then, the index has been on a medium-term downtrend.

On May 8, the index tumbled 1.8 per cent, conclusively breaking through its key support level at 5,600. Later on, the index breached its 200-day moving average and is trading well below its 50- and 200-day moving averages.

The index can continue its current downtrend and test support at 5,200 in the short-term. A fall below this will pull the index down to 5,100 and then to 4,900 levels.

On the other hand, as long as the index trades below 5,700, its medium-term trend remains down. Only a strong jump above this level will alter the downtrend and take the index higher to 6,000. Immediate resistances for index are at 5,470 and 5,550 and 5,650. The index closed at 5,267.6 level, plunging 5.5 per cent for the week.

> yoganand@thehindu.co.in

Published on May 19, 2012

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor