technical analysis overview courtesy of cantor index
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In our last couple of reports we felt that the FTSE was looking solid in the near term trading range, white region. However we can see that both in the FTSE chart above and in the US daily charts below that the international markets have broken down in recent weeks, red region. This nervousness has created 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 and could even be tempted in as bargain hunters at current levels. However breaks under the lower end of the current trading range would increase concerns that the FTSE could mirror the moves seen in the US.
The clearest trade position remains a buy on the US markets versus a short on the FTSE expecting the recent out-performance of the FTSE 100 to unwind in the coming days. For the outright trader we can see some buying interest here, albeit with tight stops under last week’s lows. The more cautious trader could already be looking at the recent medium term trend break as a reason/excuse to take some of the profits made from the summer 2012 lows.
FTSE 100 WEEKLY
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 WEEKLY
The Daily S&P 500 graph above details how the US market has just started to show a slowing of buying momentum in the recent weeks.
The S&P had been in a strong bull trend, white region, however it has broken lower in the past couple of weeks and has set up a near term bearish trend, red regions, and following the election has even accelerated lower, green line. 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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