UK stock index rose regardless of Brexit

The British FTSE 100 stock market index closed higher for 3rd straight month. Even after a small retracement it is still 7% above its level on June 23, 2016 when referendum on Brexit was held. Brexit may raise the economic and political risks. Will the downward correction of GB100 continue?

The Р/Е ratio of the index is 22 which is far above the same ratio for German DAX (15) and French САС 40 (16) although it is higher than P/E of US S&P 500 (19). By many other fundamental indicators the British index also looks overestimated. According to GfK agency, the consumer confidence index rose in August in Britain to -7 from -12 in July. After Brexit it showed a record fall in 26 years. The IFO Business Climate index for forthcoming 12 months rose in August to -22 from -33 in July. This is a weak reading as in the same period of last year the index was 3. Thus, the UK business is far from being optimistic. Among negative factors are consumer and mortgage lending which slowed down by one third this July compared to June.

GB100

On the daily chart GB100: D1 has hit a fresh 10-month high and started correcting down. Now it has approached the lower boundary of the rising channel. On Thursday at 10-30 СЕSТ the Manufacturing PMI will come out in UK, the tentative outlook is neutral. If the real data prove to be worse than market participants expect, this may have a negative effect on FTSE 100. We would also like to point that energy companies account for a major part of this index which makes it dependent on oil prices.

Parabolic gives signals to sell.
Bollinger bands have narrowed which means low volatility.
RSI has fallen below the level of 50 but has not yet reached the oversold zone. No divergence.
MACD give signals to sell.

The bearish momentum may develop in case GB100 breaks down through the support of the rising trend at 6750. This level may serve the point of entry. The initial stop-loss may be placed above the last fractal high and the 10-month high at 6950. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 6950 without reaching the order at 6750, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Position Sell
Sell stop below 6750
Stop loss above 6950