Extension analysis: how much higher can the FTSE 100 go?

The FTSE 100 Index rose above 8,000 points intraday for the first time, with gains in heavyweights and a drop in sterling boosting the UKs large-cap stock index on Wednesday.

The benchmark closed 0.6% higher to notch a fresh record, after breaching its May 2018 peak earlier this month. It reached an intraday high of 8,003.7 points, boosted by heavyweights including Shell Plc and British American Tobacco Plc and also helped by a drop for the pound after Wednesdays inflation data.

But how much further can this most recent trend go before running out of steam？ We take a look at the chart and, using extension analysis, come up with a price target for those that are long.

FTSE 100FTSE 100

The FTSE 100 Index is a capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange.

Let's take a look at what's been happening with the FTSE 100 in the last 24 hours. We've seen a first print above 8000 and the number of people now asking the question just how much higher it's going to go having befuddled many people so far in its move up that we've seen.

And it is one of the few Western indices which is at new all time record highs. The London FTSE 100 still has more to go if you use technical analysis to measure just how much further this trend that we've seen can go.

FTSE 100 chart

Let's take a look at what's been happening with the chart. I want to highlight, first of all, this move up that we've seen from the lows that we had back on the low point on 13 October to where we are at the highs. As of yesterday's trade, we haven't quite yet gone into bull market, we're 19.34% up. So that is very close to bull market when it goes above the 20% level, that is when it goes into bull market.

But on the session on Tuesday, it was significant in the 24-hour markets did see a high of 8001.3. So that itself was a milestone. But the big question remains, how much further can it go now？

Extension analysis

Using analysis using these extensions, you can work out what's happening. The first extension is the little move up that we've seen here from this line at 7704 to 7876.

Now, that has been achieved because the distance between the low point there and that high point that was established back on the 13th of January at 7876. You double that up and you pretty much get to where we are. So that really has passed. So I'll delete that line.

But this is a new extension I am now working on and this gives us a price target of 8456. Now, you work from a low point that we had there at 7296 back on the 20th of December and the move up that we had in the market to this high that we had at 7876 in the middle of January. Since then there has been this pullback and then this trajectory higher quite often when you get a move in the market, you do get these pullbacks and then an opportunity to take it even higher.

The fundamental reasons as to why this is going up are are many. But including in that of course, is just how much higher the Bank of England (BoE) goes on. Interest rates pushing sterling down potentially if it's seen as damaging the growth prospects of the economy. And 5100 companies do tend to benefit from the lower sterling. So that's one of the fundamental reasons as to what we're watching at the moment.

But using this extension analysis, if you take the lows we had back on the 20th of December to the highs there and you replicate that pass where we are, this pink line up here, takes us to 8456 which would if you are long on this market be a good point to have as your price target. If you're long at 7959 which is where we are at the moment, halfway through Wednesday's trade, your stop would go underneath this underline here, which is the supporting lines. You'll stop at around about the 7850 level 7960's where we are. Your price target would be 8456.