Breakout Alert: FTSE 100 Hits Record High

With the FTSE 100 closing at a record high on Monday, let’s take a closer look at the breakout and the catalysts behind it.

Catalysts Behind the Breakout

The FTSE 100's breakout can be attributed to several key catalysts:

Expectations of UK Interest Rate Cuts: Anticipation of interest rate cuts from the Bank of England has weakened the pound, boosting the FTSE’s exporters. Many companies in the index generate a significant portion of their revenue in foreign currencies, so a weaker pound increases their earnings when converted back into sterling.

Shift from Tech Stocks to Commodities: Investors have been moving away from high-flying technology stocks and into commodities, benefiting many large-cap stocks within the FTSE 100.

Diverging Interest Rate Expectations: The discrepancy in interest rate expectations between the US and the UK has played a role. While the US Federal Reserve is expected to maintain relatively higher interest rates, the Bank of England is anticipated to implement rate cuts. This difference in monetary policy outlooks has driven GBP/USD lower, further boosting the FTSE 100's performance.

Resilience in Energy and Financial Sectors: Rising oil prices have buoyed energy companies, while signs of economic resilience in the UK have positively impacted financial institutions. Both sectors have seen strong performance, contributing significantly to the overall gains of the FTSE 100.

FTSE 100 Daily Candle Chart

(Past performance is not a reliable indicator of future results)

A Closer Look

Zooming into the FTSE’s daily candle chart and adding volume and Relative Strength Index (RSI) indicators, we gain a deeper understanding of the price action behind the breakout…

A failed breakout attempt earlier this month was followed by a volatile retracement, during which the index retested a key level of broken resistance – using it as support and forming a large bullish hammer candle backed by high volume. The hammer candle revealed the strength of buying pressure in the market and was followed by a swift breakout move on Monday.

Momentum traders should always be wary of false breakouts, but so far, the FTSE’s breakout looks sustainable:

RSI Signals Strength: The RSI is sloping upwards and in the high 60s – indicating strong momentum without being excessive.

Preceding Consolidation: Prior to the breakout, the FTSE had spent more than three weeks consolidating sideways in a choppy range. This preceding consolidation increases the likelihood of the breakout holding.

FTSE 100 Daily Candle Chart

(Past performance is not a reliable indicator of future results)