FTSE 100 all set for June staycation

Having notched up seven fresh record highs in the space of a couple of months, the FTSE 100 consolidated only moderately in May.

Post-election glow

A largely unforeseen outright victory by the Conservatives at the election early in May gave sentiment a much-needed recharge, softening what looked set to become a significant correction.

The problem is, whilst impetus from the post-election fillip doesn’t appear to be quite exhausted yet, upside momentum seems to be looking for the same pause that could have happened earlier in the spring, had the fortuitous election outcome (from the market’s perspective) not occurred.

As we’ve stated several times before, caution is advised when trying to read effects of the wider UK economic picture in the FTSE 100’s performance.

Its constituent companies are mostly global multinationals whose shares react most strongly to international events.

However, the FTSE 100 also contains several giant consumer-orientated firms whose shares are highly sensitive to UK economic currents.

In that respect, last month, UK prices finally joined those in dozens of other developed nations, by falling into real deflation, with a -0.1% reading for April.

At the same time, the Bank of England showed no inclination to adjust its underlying message that the next move in interest rates would be up, even if not anytime soon.

The scene is set for the UK to continue to add to and benefit from globally low interest rates and cheap central bank money, a major prop of international stock markets.

Plus, UK consumption, including retail sales, which surged more strongly than expected in April, can be expected to at least buttress major UK consumer-related firms, preventing the significant FTSE retail sector declines seen last year.

Lazy summer

To this thumbnail sketch of recent fundamentals, I add the FTSE 100’s technical picture which right now largely looks like a medium-term match between monthly and weekly highs seen over the last two months.

The key pivot of 6930, formed from the FTSE’s erstwhile best-known all-time high on the last day of the last century, should continue to provide moderate-to-firm support, if two weekly closes at 6960 do not suffice.

However, the rip-roaring exuberance that lifted the market to multiple highs in the early months of the year has passed and the weekly view also shows stochastic oscillators that are quietly on edge.

The Moving Average Convergence Divergence (MACD) lines are close to crossing lower in weekly intervals and the Slow Stochastic did so the week before I write this.

This threshold isn’t showing in the monthly record yet, and relying on that picture alone we could even project the index higher early in June, suggesting another visit to May’s high of 7083, or slightly higher.

The possibility is partly corroborated by the 7085 May contract high of InterContinental Exchange’s FTSE 100 Index Future.

Even there though, the MACD signals some slacking off by the market in June.

The most obvious floor thrown up by the monthly chart is the thin body of the doji formed by trading in July 2014 at 6736.

The FTSE 100 has pivoted above or below the level ever since.

The close of trade in March of this year—6773—which the FTSE barely deviated from at the start of April, will probably work in conjunction with the above.