The FTSE 100 index has remained in a tight range in the past few months, underperforming top peers like the S&P 500 and Nasdaq 100 indices. The Footsie, which tracks the biggest companies in the UK, was trading at £8,250, up from December’s low of £8,000. So, what is next for the blue-chip index, and can it surge to £10,000?
Can the FTSE 100 index jump to £10,000?
The daily chart shows that the Footsie has remained in a consolidation phase in the past few months. This consolidation happened after the index found substantial resistance at the all-time high of £8,470 in May last year.
The index has formed a symmetrical triangle chart pattern connecting the highest and lowest swings since May last year. This triangle is nearing its confluence level. Most importantly, it formed after the index rose from £7,223 in August 2023.
As such, there are signs that it is forming a bullish pennant chart pattern. This pattern comprises a long vertical line and a triangle pattern, and is one of the few continuation signs.
The FTSE 100 index has remained above the 50-day and 100-day Exponential Moving Averages (EMA). It has also moved above the ascending trendline, connecting the lowest swings since October 2022.
Therefore, the FTSE 100 index will likely have a bullish breakout in the next few months as the triangle nears its confluence. If this happens, the next level to watch will be the all-time high of £8,470.
A move above that level will point to more gains, potentially to the 50% retracement point at £8,785. If that happens, it will increase the odds of the Footsie rising to the resistance at £10,000. That jump would imply a 21% jump from the current level.
A drop below the lower side of the triangle pattern at £8,000 will point to more downside in the next few months.
Footsie is highly undervalued
A likely catalyst for the FTSE 100 index is the fact that companies in the index are highly undervalued. Data by Siblis Research shows that the FTSE 100 index has a P/E ratio of 14.46.
In contrast, the S&P 500 index has a multiple of 24, while the Nasdaq 100 index has a multiple of 48. The Dow Jones and the Russell 2000 indices have multiples of 26 and 33, respectively.
These numbers mean that UK companies are significantly cheaper compared to their American rivals. That’s likely because most of its constituents are in traditional industries like consumer, energy, and banking.
The FTSE 100 index has no major technology companies that have driven American stocks higher. It has no firms like NVIDIA, Microsoft, and Alphabet.
Also, the British investing community usually comprises a smaller pool than in the US, where retail investors are highly involved. Instead, the market is usually weighted towards large institutional investors.
Some FTSE 100 companies have done well in the past 12 months. Rolls-Royce share price almost doubled in 2024, while firms like IAG, Barclays, NatWest, 3i Group, Standard Chartered, and Beazley soared by over 50% during the year.
These gains were offset by a big drop by FTSE constituents like Spirax-Sarco Engineering, Frasers, Schroders, Croda, and Vistry Group.
Another potential catalyst for the FTSE 100 index will be the actions by the Bank of England (BoE), which is expected to be more dovish this year. Analysts expect the bank to slash rates at least three times to help the country recover. It slashed rates just two times last year as inflation remained steady.
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