The FTSE 100 index is set to decline by more than 2% when markets open this morning. The decline, which is in line with other global indices, comes after the index notched its third straight day of gains.
It also comes a few hours after the US Senate passed the $2.2 trillion stimulus package that was negotiated by the White House, Democrats, and Republicans. The bill will then go to the House of Representative, where it will be passed today.
The FTSE 100 is not the only index to slump today. In Asia, the Nikkei dropped by more than 4% while the KOSPI and Hang Seng declined by more than 1%. In the United States, futures tied to the Dow index, S&P 500, and Nasdaq have declined by more than 1%. Elsewhere in Europe, the DAX and CAC indices have declined by more than 2%. Part of the reason for the declines in Europe is that policymakers have warned foreign – read US – hedge funds against rushing to scoop undervalued companies.
Another reason for the decline is that investors don’t understand the type of recession that the UK and other countries will have. In an opinion piece, Nouriel Roubini, who predicted the 2008 financial crisis, said that he expected a sharp I-shaped recession. This is a situation where the overall economy and companies decline in a sharp straight line.
Meanwhile, UK companies are bracing for bankruptcies, layoffs, and government stimulus. The government has pledged to spend £57 billion to rescue companies and send payments to people. Still, this figure is seen as being too small compared to what other countries have done.
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FTSE 100 Technical Analysis
The FTSE 100 index is set to open at about £5,556, after closing at £5,735 yesterday. On the four-hour chart, we see that the index made a double bottom on March 16 and 20 and then attempted to move higher. The yesterday’s high was closer to the 61.8% Fibonacci Retracement level, which I have drawn by joining the YTD low and the YTD high. Using data in the futures market, I expect the index to open at about £5.545, which is between the 61.8% and 78.6% Fibonacci level. Today, I expect the index to retest the 61.8% Fibonacci level and yesterday’s open at £5,381 and then bounce back to test the 61.8% Fibonacci level of £5840.
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