FTSE: Will the Scottish No vote be enough for index to finally crack 6900 barrier?

The FTSE started the day up around 0.7% after Scotland voted to stay in the UK. Unsurprisingly, shares in companies with direct exposure to Scotland jumped to the top of the leader board. RBS, for example, was up 3.4% on the news and after the bank confirmed it would not be moving its registered head office to the south now that the Scottish independence had been rejected, while Lloyds Banking Group said it is “proud of its strong Scottish heritage and remains committed to having a significant presence in Scotland.” The outcome of the Scottish vote has had a larger impact in some of the overseas markets, epically Spain where the IBEX is up 1.2%. This is because the 'No' vote is seen as reducing the probabilities of Catalonians demanding a Scotland-style breakaway.

However as the morning session progressed, the FTSE started to drift lower from its highs. Having chalked up decent gains yesterday when investors had already started to price in a “No” outcome, this was not a major surprise. Indeed, the pound also saw a similar buy-the-rumour-sell-the-news type of a reaction. But with the independence uncertainty over, money that had been withdrawn from UK equity funds may now start pouring back in which could help to push the FTSE higher over the coming days and weeks. According to the FT, outflows had surged to $1.02 billion in the week to Wednesday. The previous week had already seen outflows of $672 million.

Technical view

The FTSE future had climbed even higher overnight when the Scottish news first hit the newswires, but was unable to break through the 6900 hurdle as we had predicted in our special report last week . But with the global markets also rallying and a major source of uncertainty over the UK markets now lifted, this may be the time for the FTSE to finally break through the 6900 barrier and climb towards and beyond the all-time high of 6950 that was achieved in 1999. The first thing the bulls would like to see now is a daily close above 6900. Once that is achieved, the 6950 mark would be the first logical target, for it also corresponds with the 127.2% Fibonacci extension level of the most recent correction (i.e. from point C to D on the daily chart). The 161.8% extension of the same move meets the 127.2% of another, larger, correction (i.e. the AB downswing) at around the psychological area of 7000. The 161.8% extension of the latter meanwhile comes in at 7125.

On the other hand, if the FTSE continues to head lower from here then a couple of the important near-term support levels to watch are at 6855 and 6820, which were formerly resistance. But the key support area is further lower around 6760/70, where the 50-day SMA meets the prior lows and the 38.2% Fibonacci retracement of the upswing from the August low (i.e. the BC rally). The 200-day SMA comes in at 6725.

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