technical analysis overview courtesy of cantor index
In our last report we felt that the FTSE was looking solid in the near term trading range. However we can see in the charts below the US market have posted bearish trading ranges, creating significant headwinds for any UK stock buyers.
The Medium term trend has been broken, white line, but as yet the FTSE has not posted as clear a down trend as the S&P 500 and Dow, see below. So for the moment the bulls do not look overly concerned.
In our last not we mentioned that many technical analysts fall into the trap of attempting to call the markets, we feel it is more sensible, and over the long run more profitable, to simply wait for the market to tell you of its direction. So the medium term trend line break, followed by softer price action in recent days, and the weakness in the US does flag up ‘take profit’ areas and we do even see interest from short sellers, particularly if the markets was able to break under the near term support around 5750. But that we will refrain from attempting to call the break lower, and just flag up the possible near term weakness that could emerge if the recent support areas are breached.
Those traders wishing to avoid an outright position may be tempted to sell the FTSE here against a buy on the S&P 500, expecting the recent out-performance of the FTSE 100 to unwind in the coming days.
FTSE WEEKLY CHART
The situation on the Weekly chart will take some time to change greatly, so the text below may remain broadly same week to week unless major levels are broken. As with the monthly chart below however we will update the graph each week, and post all the text 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. Also in recent weeks the S&P 500 and the Dow have both posted higher medium term highs, suggesting the FTSE is set to do the same, which would of course negate any possible bearish H&S.
Also on this chart we have drawn some potential Elliot Wave counts. With the 2009 to 2011 move being a five wave impulse wave, and the resultant correction the traditional abc pattern. This labelling follows the standard Elliot convention that Wave 4 must not overlap with Wave 1. Also as is typical the abc correction has found support from the end of Wave 4.
One method in using Elliot Waves is to create a trading channel off waves 2,4 and projecting the parallel higher. Wave c of the reaction broke through this support and also interestingly found support off the 50% retracement level, central blue line.
While the price action is under the 2011 highs trend followers will be concerned over whether the current trading range is the start of a fresh 5 wave impulse wave higher, or part of a more complex WXY correction lower.
So in the interim we can see the current trading range dominating the trading mood, with a positive bias, Due to the US. With any breaks above the 2011 highs allowing more significant long term upside objectives to be drawn.
S&P 500 DAILY CHART
he Daily S&P 500 graph above, and the Dow chart below, both detail how the US markets have just started to show a slowing of buying momentum in the recent weeks.
Both markets had been in strong bull trends, red regions, however both have broken lower in the past couple of weeks and have set up near term bearish trends, white regions. Under-performance and divergence compared to the FTSE 100 of this type is not that common place and would appear to offer up a Buy US, Sell FTSE trade for those looking for this near term divergence to unwind.
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