It's been a long time between drinks for Britain's blue-chip stock index, the FTSE 100 (or Footsie). As shown by this monthly chart, provided by Alan Clement, a member of the Australian Technical Analysts' Association, the Footsie reached a record monthly high of 6977 points during the dotcom bubble in 1999 and has never returned to such heights.
According to technical analysis, the index has been consolidating within a large symmetrical triangle for 13 years. This includes a high below the 1999 peak, prior to the GFC in 2007, and a post-GFC low that was higher than the low after the dotcom bust.
The index made a recovery from the 2009 nadir, then spent 2010 to 2012 in a smaller symmetrical triangle. In September last year, the index broke through the smaller triangle and almost without faltering pushed back to its longer-term trend line (the upper side of the large triangle) at around 6600 points.
That strong upward movement shows resolute buyer support in the market following the breakout, Clement says.
The Footsie met resistance at the trend line, resulting in a sharp retracing of its path, followed by a quick recovery. That's another bullish signal, which demonstrates buyers overcoming sellers and a preparedness to support the index at current elevated levels.
At the time of writing, the monthly chart is within 2 per cent of the trend line, and moving upwards, indicating another breakout may be imminent. Should that occur, Clement says the index could run quickly towards the 1999 record high where it will likely see short-term resistance.
If it breaks through the old high, it could run towards 8000. Clement forecasts an upside target of 8050 points.
On the downside, if the Footsie does not convincingly break out of the longer-term consolidation pattern, then sellers could take over, pushing it back to the lower trend line, which is about 4000 points.
On the fundamental side, the situation looks optimistic, with investors adopting a "risk on" outlook. That is seeing them move out of gold and bonds in favour of equities, which should help put more thrust under the Footsie as it attempts its breakout.
This column is not investment advice. firstname.lastname@example.org