FTSE technical analysis overview courtesy of cantor indeX

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In the past couple of weeks the FTSE had posted some minor profit taking. However the price action in recent days has lifted the index back to fresh multi year highs and the index has maintained the near term bullish trend, blue line.

The RSI over this period has posted bearish divergence, as higher highs in price are not matched with higher highs in RSI, upper red lines. What is interesting however is that since then it has posted an RSI Positive Reversal, black lines. Positive Reversals usually occur after bearish divergence, as in this case, but rather than confirming the negative outlook of the bearish divergence it actually signals significant buying pressure.

The underlying logic is quite simple, essentially it highlights that RSI in the past few days has posted a lower low, upper red line on RSI. As mentioned above this has followed the RSI Bearish Divergence, so we would fully ‘expect’ the FTSE 100 also to have posted a lower low in price. It has not. This is positive divergence. The fact that this has occurred at the RSI 50 level also helps the bulls believe that the underlying buying trend remains in tact, and that once the near term nervousness has passed the FTSE 100 has higher to go.

So in summary the FTSE has posted some sharp moves higher from November, and seems to have moved into some natural consolidation areas. The near term trend remains in place and while the 50 level holds on the RSI, and strong price trend line support holds the outlook remains skewed to the upside, the price action would need to break the November trend line to negate this positive stance.


Last updated, March 4, 2013

The graph above throws up a possible Elliott Wave count on the FTSE 100. We can see how from the 2009 lows there was a fairly clear impulse move higher, Black 1-5, followed by a simple abc correction. Another impulse move higher brought us up to the highs of 2011.

From these highs the FTSE appears to have set up a combination correction. With a simple abc, in purple, followed by an ascending triangle c wave, in green. This possible count is giving quite an optimistic upside target limit. As Wave 3 of an impulse cannot be the shortest wave within an impulse. As Wave 3 on this count is less than the height of Wave 1 we know that Wave 5 cannot move further than the highest of Wave 3 without negating this potential count. On this graph this is described by the upper blue line at 7136. This is the height of Wave 3 projected onto the low of corrective Wave e.

Elliott Waves often also throw up resistance and support areas by projecting lines off waves 1 and 3, and 2 and 4. The upper diagonal red line is not intersecting with this upper Elliott Wave target limit until December 2013. So if the pace of the current move from the 2009 lows continues we are not set to test this considerable upside cap until the traditional Santa rally emerges.

So from an Elliott Wave perspective over this timescale there are bullish arguments for a move up through and beyond the al time highs, and that this strength could start to fail early in 2014. The highs of corrective waves b and d could be used as levels to negate this potential count.

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