Global equities are gaining more momentum by the days, some of the indices posted a new record over the past few days, while some are still rising, but far away from their significant levels. However, the question remains is where to invest?
Since the end of the US elections and Trump’s inauguration, uncertainty remains on the rise, while some investors are shifting to safe haven investments such as Gold and Silver. In today’s article, we will take a look at three major indices from a technical point of view and whether if it’s worth to invest in these indices in the coming weeks.
Read more: US Equities At Record High, What’s Next?
Despite the Brexit referendum outcomes last year, FTSE100 index managed to stabilize and continued to rally, reaching a record high. If you are asking how and why this happened, the simple answer is, thanks to the central banks, especially the Bank of England.
Right after the referendum announcement, the Bank of England reassured the world that the financial system is strong and solid. The BOE will do whatever it takes to keep the UK strong.
Moreover, the Bank of England decides to cut the interest rate in August to 0.25% (record low) and increased its asset purchases facility to 435B pounds. The stock market likes central banks’ easy policy. The more cheap money provided by the central bank, the bigger the potential for stocks to rise further.
FTSE 100 advanced all the way above 7000 back in December of this year, reaching a record high of 7354 on January 16th. However, since then, the index eased some of those gains back to 7150. The question is, is it worth it to buy the index again?
The answer would be yes, but you need to mind your risk. So far, the index is trading above 7126, which is a solid support after it used to be a solid resistance since 2015. December’s rally was a clear breakout, and now, the index is just retesting that former resistance area. We saw the first bounce last week, which would be a positive signal. Yet, another test could be seen in the coming days, especially if it fails to break above 7200 in the coming days.
Your risk should be very light, as a weekly close below 7100 would clear the way for a sharp decline ahead. A fundamental catalyst is also needed for such decline, which might be the political debate about Brexit.
On the upside view, 7300 might be the next stop as long as the index stabilizes above 7100.
It’s different story in Japan, Nikkei 225 has been trading within a tight range since December of last year, and its far away from its record high. This is due to the recent fluctuation in the Japanese Yen.
Nikkei has been trading within a tight range between 19500 and 1900 with no clear break above or below those levels. However, the technical indicators are heavily oversold and began to turn higher over the last two trading days, which increases the chances for another rally in the coming days.
Yet, this doesn’t change the fact that the index is trading within a sideway channel, which should be watched very carefully. If the technical indicators are right, the index should start trending higher over the coming days. We already saw the first two green days on Tuesday and Wednesday, but it needs to hold in order to grant another push higher.
The next immediate resistance stands at 19100, while a break above that resistance would clear the way for further gains ahead, possibly towards 19210. A failure to hold above the mentioned levels, would increase the rise for another leg lower below 18700. Such move might be caused by a stronger yen, which is still hovering around 112.0 levels against the Dollar.