In the past few weeks we highlighted how the FTSE has broken through its previous bullish trading channel, red region. We mentioned at the time however that a trend line break does not necessarily equal a trend change, and that often a period of consolidation occurs following a break of this nature.
A consolidation has followed. Trading following a trend line break often falls into the retracement areas calculated from the previous trend, horizontal red lines on chart. The FTSE moved into this natural retracement area briefly following the US presidential election, but from this level found strong buying interest. The question going forward is if this buying has enough momentum to break the significant upside resistance, or if once again the buyers will lose interest?
We suggested last week that over the thinly traded Christmas period the market may be able to post some moves through the 5,922 highs. The graph details how the FTSE has managed such a break in recent days. As last week however we remain concerned that this is a not a ‘genuine’ break, and will require additional confirmation before we turn more bullish.
So for now we continue to see the risk/reward on trading shorts more favourable at current levels. A break up through, 6000 naturally has extremely positive longer term implications, but this would need to be confirmed in January. We still see that the next 400-500 point move on the FTSE for H1 2013 as being more likely to be a retracement down to 5,400, than a break up to 6,400.
As a result we see still see current levels as looking attractive to those wishing to take profits, and even tempting to those looking for shorts, waiting for the ‘real’ market to return in 2013.