Momentum slowing as UK FTSE Index scales to new highs
Upward momentum is slowing as the UK FTSE Index stages fresh record highs; while there is scope for medium-term gains, a minor pause in the short-term can’t be ruled out and what are the signposts to watch?
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There is more evidence that upward momentum is slowing as the UK FTSE 100 index scales to record highs, raising the prospect of a pause / minor retreat in the rally.
To be sure, there is no sign of reversal – indeed higher highs on the daily charts imply that the trend is still up. However, the higher highs are getting registered on slowing momentum suggesting buyer fatigue could be setting in given the extent and the pace of the rise over the past few months (see the daily chart).
This is especially so as the index is testing quite a tough hurdle, including the upper edge of a rising channel from 2003 (now at about 8350), slightly above the 2018 high of 7903 (see the monthly chart).
FTSE daily chart
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Unless the index stops making new highs, the path of least resistance could still be up. In other words, at the very least, the index needs to stop making new highs for any consolidation to take place. Moreover, any consolidation may not necessarily imply a reversal of the uptrend – the FTSE 100 index could well go sideways.
In this regard, there is plenty of support on the downside that could restrict any potential pullback. The initial cushion is at the January high of 7875, followed by the end-January low of 7708, near an uptrend line from October. Stronger support is on the 200-day moving average, roughly coinciding with the lower edge of the Ichimoku cloud.
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As noted in the previous update, technical and breadth market indicators suggest there is scope for a further rise in UK equities in the coming weeks/months. There is more evidence from breadth market indicators recently supporting an optimistic outlook.
As of Thursday, 87% of the members in the UK FTSE 100 index were above their respective 30-week moving averages (WMA), not too far from 90% a week ago. Data from 2002 onwards suggests that when 88%-94% of the members were above their respective 30-WMAs, the index has been up 63% of the time over the subsequent 90 days (the distribution plot on the right panel).
In addition, last week, 46% of the members were at new 8-week highs. In cases where 40%-46% of the members stage new 8-week highs, the index has been up 60% of the time over the subsequent 3 months (the distribution plot on the left panel).
FTSE monthly chart
![](http://a.c-dn.net/c/content/dam/publicsites/igcom/au/images/News-and-articles/3FTSE170223.png/jcr:content/renditions/original-size.webp)
Looking beyond the near term, from a multi-week perspective, a potential bullish reverse head & shoulders pattern (the left shoulder at the 2018 low, the head at the 2020 low, and the right shoulder at the 2022 low) suggests any consolidation could be short-lived (see weekly chart).
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