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FTSE 100 forecast for February 2020: charts likely point to higher prices

By David Becker

A weekly close above former resistance may lead to higher prices

The FTSE has broken out to fresh all-time highs, driven by capital flows into riskier assets. A weekly close at a new high is very significant and likely points to higher levels for the FTSE 100. The Bank of England kept rates unchanged at 0.75 per cent at their latest monetary policy meeting, which has kept the pound stable and allowed capital flows to continue to move into the UK. With the Brexit decision in the rearview mirror, some of the concerns over the trade fallout have been lifted allowing the FTSE to test new highs.

FTSE 100 prediction: seasonals

The seasonal returns for the FTSE in February are mixed. Over the past 5-year and 10-year period, the index has been higher 60 per cent of the time with an average gain of 0.2 per cent. Looking forward, March has been up four of the last five years with an average gain on the FTSE of 0.7 per cent. In April the FTSE has been up 100 per cent of the time over the past five years with an average gain of 3.8 per cent.

FTSE 100 technical analysis

The price action points to the beginning of an upward trend especially if the FTSE is able to close at a weekly all-time high. This would signal a breakout and likely prices for the index. With blue skies ahead of the FTSE target resistance could be substantial. The US S&P 500 index has outperformed the FTSE by 17 per cent over the past year, and this breakout could lead to some catch-up. Support is seen near the 10-week moving average at 23,932.

Short-term momentum has turned positive as the fast stochastic measure generated a crossover buy signal at the bottom of the oversold territory region. This reflects accelerating positive momentum.

The weekly relative strength index (RSI) moved higher but did not take out the recent highs near 69. This could represent a divergence. This occurs when prices break out but momentum does not. If this continues, the breakout might lose steam. The RSI is printing a reading of 66, just below the overbought trigger level of 70. Reading below 30 on the RSI is considered oversold.

Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram crossed above the zero index line, with an upward sloping trajectory which points to higher prices.

The daily chart of the FTSE index also points to an upward trend during the balance of February. Prices have formed a bull-flag continuation pattern, suggesting a pause that refreshes higher.

FTSE 100 prediction for February: bottom line

The FTSE 100 has broken out to fresh all-time highs. A weekly close above former resistance should lead to higher prices. Short-term momentum has turned positive, but the RSI could be signaling a divergence. The trend is upward sloping, and medium-term momentum has just turned positive. Look for higher levels on the FTSE during the rest of February.

FURTHER READING: GBP to USD prediction 2020: is the pound going to rally?

FURTHER READING: 7,550 major technical resistance: FTSE 100 technical analysis

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