The FTSE 100 index avoided moving into a correction area this week as UK stocks sell-off eased. The index of blue-chip UK companies was trading at £7,456, which was about 1.88% above the lowest point this week.
Energy stocks drag the Footsie
The FTSE 100 index came under intense pressure as banks, mining, and oil and gas stocks plunged. Banks dropped because of the Silicon Valley Bank and Credit Suisse crisis. On Wednesday, most bank stocks in the index were halted as they nosedived. For the week, Standard Chartered, Barclays, Natwest, and Lloyds were among the worst performers.
Oil and gas companies in the FTSE index continued slipping. Shell share price dropped by 13% in the past week while BP dropped by over 12%. This decline happened as the price of crude oil continued its downward trend. Brent, the global benchmark, dropped to about $72 while the West Texas Intermediate (WTI) fell to $66.
The main concern for crude oil prices is that the Chinese economy was not recovering as quick as was expected. In fact, oil shipping data shows that the number of shipments to the country has not surged amid the reopening. Therefore, some analysts believe that oil prices will continue to fall. As such, this means that these companies will be unlikely to replicate their 2022 performance.
The slow Chinese recovery has also hit mining companies, which form a good part in the FTSE 100 index. Anglo American share price dropped by 11% while Glencore stock fell by over 10%. Rio Tinto also declined sharply after the company slashed its dividend.
The other top laggard in the FTSE was Prudential, the Asian-focused insurer whose stock fell by 14.5%. The company published relatively weak financial results during the week. On the other hand, the top performers in the index were Rentokil Initial, Admiral, United Utilities, and Severn Trent.
FTSE 100 index forecast
FTSE 100 chart by TradingView
The FTSE 100 index dropped to a low of £7,322 on Wednesday and then crawled back to £7,462. This price is at the oversold level of the Murrey Math Lines. It remains below the 25-period and 50-period moving averages. The Relative Strength Index (RSI) has moved from the oversold level of 18.58 to 38.82.
However, I suspect that the index has some more downside to go. As such, I feel that this rebound is a dead cat bounce, which could see it retest the support at £7,315. The key point to watch will be at £7,247, which is the correction area.