Bounce Likely to Continue as Omicron Fears Fade

FTSE 100 price, news and analysis:

• The FTSE 100 index of leading London-listed stocks is benefiting along with other global stock indexes from fading concern about the impact of the Omicron variant of coronavirus on the world economy.
• That rally will likely continue for a while as the losses that began last Friday are gradually recouped despite a more hawkish Federal Reserve.

FTSE 100 bounce not over yet

The FTSE 100 stock index is well placed to extend the near-term bounce that began early Tuesday as traders began to believe that the negative impact of the Omicron strain of the coronavirus on riskier assets has been overestimated by the markets.

Interestingly, neither news that Germany is considering making vaccines compulsory, nor a report that one of the South African doctors who first identified the new variant considers it too early to declare its symptoms mild, has derailed the rally, suggesting it should continue, at least near-term.

FTSE 100 Price Chart, One-Hour Timeframe (November 24 – December 1, 2021)

Source: IG (You can click on it for a larger image)

Global stocks shrug off more hawkish Powell

Interestingly too, after losses on Wall Street overnight, there has been little impact on Asian or European stocks from comments by Jay Powell, who chairs the US Federal Reserve, suggesting that inflation may not after all be “transitory” and that the Fed will consider tapering its asset buying earlier than planned at this month’s meeting.

Market resilience in the face of those comments also suggests that stocks have been oversold, although as the chart above shows that is not the case technically, with the relative strength index (RSI) well above the 30 level. Still, risk assets generally have bounced ahead of a second day of Powell testimony, this time to the House Financial Services Committee.

Clearly that will be important for global markets, although the Fed chair rarely says anything new on day two that he has not said on day one. Also, there is unlikely to be much on monetary policy when Bank of England Governor Andrew Bailey speaks today as the subject is insurance regulation.

FTSE 100 sentiment mixed

Turning to market sentiment, there is currently no clear signal from the IG client positioning figures. The retail trader data show 71.65% of traders are net-long the FTSE 100, with the ratio of traders long to short at 2.53 to 1. The number of traders net-long is 0.37% lower than yesterday but 32.86% higher than last week, while the number of traders net-short is 6.35% higher than yesterday but 43.86% lower than last week.

Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests the FTSE 100 may resume its decline. Positioning is less net-long than yesterday but more net-long than last week. The combination of current sentiment and recent changes gives us no clear FTSE 100 trading bias.

— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex