FTSE & DOW TECHNICAL OVERVIEW FROM CANTOR CAPITAL

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FTSE 100, Daily, Candle

The technical situation on the FTSE has not changed greatly from last week, the index remains within the near term trading range, red region, that we have been monitoring for a couple  weeks now.

On the Daily graph we have kept the near term trading range, red region. We can see how the market has stayed strong through July-August. Of technical importance is how the moves higher on this move have posted fresh highs for the summer. This is important as we had previously flagged up some concerns on how the index had failed to create a higher high following the sell-off in mid July. So this does indicate decent near term buying, despite the traditionally light summer volumes.

The outlook has also been improved as the 61.8% level has now been decisively broken, which does start to allow the more bullish traders to consider a full 100% retracement to the summer 2011 highs around 6105. The Eurozone issues as ever linger on, but the levels broken in recent weeks do suggest that the longer term buyers are increasingly looking through the eurozone news.

The index does look vulnerable to some profit taking, but within the existing strong near term trend support would be expected to hold any such selling from accelerating into anything more serious.

In summary then the FTSE has continued to post a solid H2 recovery. Significant resistance levels have been breached and the index is in a strong near term bullish trend. Leaving an optimistic view for the remainder of Q3. There is room for profit taking that could allow for weakness to pull the index down towards 5,600, but within the brightening outlook any such profit taking would likely be seen by the more medium term buyers as attractive areas to add to existing positions. Moves under the current trading range and moves back into the retracement channel would be needed to negate this brightening outlook.

FTSE 100, Weekly, Candle

The situation on the Weekly chart will take some time to change greatly, so the text below again may remain broadly same week to week, unless major levels are broken. As with the monthly chart below however we will include all the information each week, so that new readers will have all the information to hand.

For the Weekly chart we can see how the FTSE 100 has clearly had a hard time breaking up through the 6,000 area over the past couple of years. We can also see how the current price action could well be the price moving down the right shoulder of a ‘head and shoulder’ pattern. It is much too early to call this pattern formally here, as the neckline would need to be breached, around 4,775, but it is still worth noting as this could result in medium term nervousness.

The current price action seems to have gained some support from the medium term trend line, red line. From the lows posted last year the index has posted a robust recovery, the concern in the medium term is that the market as yet has failed to post a higher high in 2012. The more cautious UK based investors will need the 2012 highs to be breached in order to turn more outwardly optimistic for the medium term, while trend based investors will already be feeling confident, and will remain so while the medium term trend line holds.

FTSE 100, Monthly, OHLC

The monthly timescale naturally takes the long term view so the commentary in this section will only be updated as when market events dictate. So regular readers of this report will only need to read the monthly and weekly sections on a relatively infrequent basis. However we include all the information to give new readers the full picture.

The Monthly graph for the FTSE 100 quite clearly shows how the index posted an extremely powerful move into the end of the last century, red line.

From the all time highs in the index at 6950 the FTSE slumped 50% to the 2003 lows. In hindsight we can see this move as an understandable and even justifiable re-examination of the strong gains posted in the previous 20-30 years. The market currently remains well above these lows, which tells us that the Eurozone sovereign debt issues, technically at least, are not as significant as the general press would have us believe.

The FTSE remains in a trendless state, having posted lower highs in 2007, and higher lows in 2008, black lines. The retracement levels calculated from the all time highs to the 2003 lows create some interesting levels. We suspect that these levels will continue to be of use for the quarters ahead, a break back under the 61.8% level would suggest a new trading range between 4367-5215 would be possible. This area also coincides with the possible neckline of a major bearish H&S Pattern. Which would suggest strong support seen on any weakness down to 4775.

In summary then the FTSE 100 remains in a trendless state over the long term, with lower highs and higher lows, trading in the shadow of the TMT sell-off. Currently the index is seen to have a downward bias within this retracement channel, towards the 5200 area , (the upper retracement level), but that on any such weakness strong support would be expected.

Dow Graph, Quarterly 

Above is just a quick chart on Dow, highlighting that despite the wider market nervousness the Dow has pushed on towards its all time highs, upper red line. This long term chart highlights how the index took a few attempt to break through the 1,000 area during the 1960’s-1980’s. Then posted an extreme move higher to the end of the millennium. This move is all the more powerful as this is a semi-log chart.

Unlike the FTSE the Dow posted fresh all time highs in 2007, so the Dow has posted a long term broadening pattern, green lines, compared to the FTSE 100 which has posted a tightening formation over this period.

So the long term bulls will be hoping that the Dow can push through its major long term highs and post a bull trend comparable to that seen in the 1980-2005 period. While bears will feel the index will fail at this current attempt and more closely match the series of failures posted between 1965-1985.