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FTSE 100, Daily, Candle

Last week we still felt that the bearish argument had not been entirely won, and that as a result the FTSE was looking vulnerable to some short term profit taking. So the continued strength in recent days, pushing the FTSE 100 up to fresh near term highs, has been more bullish than we had been expecting.

On the Daily graph we have drawn this bullish near term trading range, red region, where we can see how the market has stayed strong through July. Of technical importance is how the moves higher in the past week 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.

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.

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