FTSE: Vaccine optimism shot in the arm for UK stocks



Today saw the FTSE trade at a 5-month high, after staging one of its sharpest 3-day rallies in years. But this could just be the beginning of an even larger recovery.  



The UK index, which had underperformed global and US indices badly since the initial round of lockdowns earlier in the year, has benefited from rotation into value stocks and away from growth and stay-at-home tech plays that had lifted the Nasdaq to repeated all-time highs.

Monday’s announcement from Pfizer on the progress made in coronavirus vaccine seems to have been a game changer, even if experts warn that production and distribution may take time. With ongoing central bank and government stimulus providing support, economic recovery could rebound strongly if things go back to normal next year. That’s what the markets are pricing in right now, and ignoring the current economic situation, as a result of the lockdowns and the pandemic.

While the FTSE may look a little bit stretched now, it still has a lot of ground to make up on the upside. The path of least resistance is clearly to the upside after it formed a higher high above 6040 on Monday. Now almost 400 points higher, it looks like the bulls will want to target the summer highs circa 6510 and beyond:

FTSESource: ThinkMarkets and TradingView.com

Interestingly, the index looks like it is following a path towards 7100-ish, roughly the point D of a potential Gartley – a Fibonacci-based technical – pattern. Obviously, that target looks miles away from here, but as the chart shows, this looks almost like a perfect example of the Gartley. So, it could get there in the not-too-distant future.

Meanwhile key support is now at 6300, the last resistance area prior to today’s rally. For as long it holds above this level, the short-term bullish bias would remain intact. Insofar as the slightly longer-term technical bullish bias is concerned, 6040 is now the line in the sand.



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