Is FTSE about to stage a meaningful rally?

The FTSE has risen after the Easter holiday and is tracking Monday’s gains is the US where the S&P 500 achieved its first five-day winning streak since October. With the lack of economic data, and no fresh news regarding Ukraine, all the focus is on individual companies. Sentiment is boosted, above all, by the generally positive US first quarter earnings results. Last week banking giants Goldman Sachs and Morgan Stanley were among the companies whose earnings results were better than expected while Netflix posted forecast-beating numbers yesterday. A slew of earnings results are due out today with Comcast and Bank of NY Mellon already reporting better-than-expected numbers ahead of the opening bell on Wall Street. However results from Xerox and McDonald's have disappointed, taking some shine off an otherwise bullish-looking day. A wave of merger news is aiding the sentiment further with a Sunday Times report suggesting that the US pharmaceutical giant Pfizer has approached AstraZeneca to propose a £60 billion takeover bid. On top of this, Novartis has announced its intention to buy GlaxoSmithkline's cancer business in a deal that could reach $16 billion and sell its vaccine business to GSK for $7 billion. In a separate multi-billion dollar deal, Eli Lilly and Co said it would acquire Novartis’ animal health business. A merger bid from bio tech firm Valeant for Botox-maker Allergan yesterday is also worth mentioning.

So what does it all mean for the FTSE? Well, as mentioned, the index is higher on the session, tacking on a healthy gain of just over 1% at the time of this writing. But there could be more gains for the UK benchmark stock index given that it has now eroded a bearish trend line that had been in place for a number of weeks. You may recall from my last report that the index had already formed a triple bottom formation at 6500, which is obviously a bullish outcome. The FTSE has since taken out several resistance levels including the 6680 mark today. As a result, the index has paved the way for a retest of the April peak of around 6705. The immediate levels to watch above here are 6762/3 and 6834/5, which are the 127.2 and 161.8 percent Fibonacci extension levels of the down move from the April high (~6705). Further resistance levels are seen at 6865 and 6885. Meanwhile 6680 could now turn into support, having previously offered resistance. The other near-term support levels to watch are 6645, 6600 and then that key 6500-mark.

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