Today, risk-appetite is strong as investors pile into the FTSE 100, CAC 40, and Nikkei 225 before the re-opening of the world economy is fully priced in. These three markets have today triggered bullish continuation patterns that suggest higher prices in the weeks ahead.
FTSE 100 Triggers Ascending Triangle Pattern
The FTSE 100 has been trading sideways since March 26, and the price struggled to trade above the April 9 high of 5920. However, in the last few hours, the FTSE 100 managed to pierce the high and then added to its gains. Ultimately, the index might be able to trade higher as the consolidation from March 26 was in the shape of an ascending triangle pattern with a target of 6460. The pattern is formed when the price is struggling to overcome horizontal resistance such as the April 9 high, and at the same time creating higher and higher lows, as shown with the upward sloping trend line in the image below, that connects the April 3 and April 22 lows.
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Nikkei 225 Clears Resistance
The Nikkei 225 future also traded higher, and now trading above the April 17 high of 19821. Also, in this market, as in the FTSE 100, the price has triggered a bullish ascending triangle pattern. Here the target is the 21498 level, and this pattern will remain in play as long as the index trades above the April 24 low of 19052.
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Why are the Nikkei 225 and FTSE 100 trading higher?
The rise in stock markets over the last few weeks has come to as a surprise to most analyst and investors given the abysmal economic data, and the world economy is contracting sharply. However, the contraction in the world economy was because of the lockdowns which were triggered by the coronavirus.
However, with Covid-19 infections dropping dramatically, the world economy is getting ready to re-open for business, and it is this better scenario that investors are pricing-in. I, therefore, think that while the economic data from March and April will continue to disappoint, I believe that the May data for some countries will be better, and with more improvements in the June data, as more countries would have opened.
The European central bank is set to hold a meeting this week, and there are expectations that they might start to buy Junk bonds, and this will further help the economy to overcome the hibernation of the world economy.