FTSE technical analysis overview courtesy of cantor index

In the past few weeks we have kept a close eye on the 2012 highs, as these had been a major resistance area, with added importance due to its close proximity with the psychologically important 6,000 level. 

We can see how the FTSE has pushed through the 6,000 level and through the cluster of previous resistance levels, including the 2012 highs, red line. Following this break the buying has continued lifting the index up to the upper end of the broad trading range red region. In the near term the price action does look vulnerable to some profit taking, but due to the strong trend from the 2011 lows, trading shorts remain unwise. Those looking to go short should instead look at individual sectors and stocks to find a stock in a bear trend, rather than the shorting the index here.

The RSI has moved into overbought conditions, but as RSI is a non trending indicator you would expect a move into extremes as major upside resistance is broken. In fact over the medium term in recent years ‘RSI is wrong’ has become a trade signal in itself, where a market moving through a break is not confirmed until the RSI moves into a matching extreme. Using this logic buyers would look to add to existing long positions once the price action does ease to the RSI trend line, red trend line on lower RSI line. On the expectation that a new medium term bullish leg has been confirmed. 

So the index has posted an impressive start to 2012, some near term profit taking looks likely, buy on any such weakness, hold in the interim.