FTSE technical analysis overview courtesy of cantor index

3 mins. to read


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. 

Also in strong bull trends the standard overbought/oversold thresholds need to be migrated higher to 80-40 as graphs often drop down to the 40 area while in bullish trends, and rarely come off to the 30 level. As a result overbought areas are not too much of a concern here, while the RSI trend holds, only on an RSI trend line break  would the outlook become a little more nervous. 

So the index has posted an impressive start to 2013, some near term profit taking looks likely, buy on any such weakness that materialises, hold in the interim.

For the Weekly chart we can see how the FTSE 100 had a hard time breaking up through the 6,000 area over the past couple of years, but that it has now made a sustained break up through this major resistance. Over this period the market has posted a strong bullish trend, lower red trend line as the index continues a strong recovery from the 2009 lows.

Pattern followers would describe the price action in recent years as an ascending triangle, with the lows in 2011 and 2012 getting progressively higher, while the 6100 caps the gains. Basic pattern analysis takes the height of the pattern and projects this onto the break. So using this logic the FTSE is looking set for a push up to its all time highs.

Elliott Wave followers may instead see a 5 wave impulse pattern and abcde triangle correction, which broadly follows the Elliot Wave rules, where Wave 4 does not overlap with Wave 1 and Wave 3 is not the shortest line.

The Resulting correction could be an expanded flat abc correction, where wave c has sub-divided into an abcde ending triangle, green letters. The upside potential for this count is significant to say the least as it would be targeting a return to the all time highs as it suggests the start of a new five wave impulse wave ahead.

For the medium term then the outlook is positive and improving, breaks under the medium term supports are required, or more obvious bearish Elliott Wave counts are needed, to turn more negative.

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