31st Dec 2021. 10.10am
FTSE technical outlook Q1 2022
FTSE set to end a strong year near its highs
If ‘markets rise on a wall of worry’ then 2021 has been a textbook example.
Investors have had plenty to worry about during the last twelve months…
Two new COVID-19 variants, a Chinese property crash, global shipping disruption, a European energy crisis and rampant inflation, just some of the reasons to have been bearish on stocks in 2021.
And yet with just a few hours to go until Big Ben chimes, the FTSE is on course to post annual gains of more than 14% (excluding dividends).
Of course, the FTSE’s performance has been dwarfed by the tech-heavy S&P 500, which is on for gains of 27% in 2021.
However, the FTSE has kept pace with its European peers, the German DAX and French CAC, and UK stocks have considerably out-performed Asian stocks which have had a miserable year. MSCI’s broadest index of Asia-Pacific shares outside Japan is down 6% on the year.
Outlook for Q1 2022
It’s not difficult to paint an equally worrisome scenario for 2022…
Inflation is set to stick around for longer than central bankers would like and the rising cost of living in the UK and throughout Europe will no doubt continue to squeeze the consumer.
And with an inflationary backdrop, the era of easy money from accommodative monetary policy is coming to an end.
We also have the, as yet unknown, impact of Omicron on global growth. And whilst it seems increasingly clear that the highly mutated variant comes with milder symptoms, we do not know if lockdowns throughout China and South Korea will again disrupt global supply chains.
So, if we take the ‘wall of worry’ principle, 2022 should be another strong year for stocks!
In all seriousness though, as short-term traders, the best strategy is often to turn off the media noise and focus on what price is telling us…
The dominant technical backdrop for the FTSE is bullish, with dip buying throughout the year creating a series of higher swing lows.
Should the uptrend continue into Q1 2022, it’s worth keeping a close eye on the cluster of pre-pandemic highs from 7,570 – 7,670 (see weekly candle chart). And not far from the pre-pandemic highs are the FTSE’s all-time highs. A retest of these levels will no doubt be met with significant selling pressure.
But as we head into the New Year, the FTSE’s bulls remains firmly in charge and they can toast an impressively strong performance in 2021.
This research is prepared for general information only and should not be construed as any form of investment advice.