FTSE 100 Technical Analysis

Monday, January 28, 2013, Marketing Communication FTSE 100, Daily Please click on graph above to open a larger image In the past few weeks we have kept a close eye on the 2012 highs, as these had been a major resistance area, with added importance due to its close proximity with the psychologically important 6,000 level. We can see how the FTSE has pushed through the 6,000 level and through the cluster of previous resistance levels, including the 2012 highs, red line. Following this break the buying has continued lifting the index up to the upper end of the broad trading range red region. In the near term the price action does look vulnerable to some profit taking, but due to the strong trend from the 2011 lows, trading shorts remain unwise. Those looking to go short should instead look at individual sectors and stocks to find a stock in a bear trend, rather than the shorting the index here. The RSI has moved into overbought conditions, but as RSI is a non trending indicator you would expect a move into extremes as major upside resistance is broken. In fact over the medium term in recent years ‘RSI is wrong’ has become a trade signal in itself, where a market moving through a break is not confirmed until the RSI moves into a matching extreme. Using this logic buyers would look to add to existing long positions once the price action does ease to the RSI trend line, red trend line on lower RSI line. On the expectation that a new medium term bullish leg has been confirmed. So the index has posted an impressive start to 2012, some near term profit taking looks likely, buy on any such weakness, hold in the interim. FTSE 100, Weekly Please click on graph above to open a larger image Last updated, January 7th, 2012 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 had a hard time breaking up through the 6,000 area over the past couple of years, but that it has now made a sustained break up through this major resistance. Over this period the market has posted a strong bullish trend, lower red trend line as the index continues a strong recovery from the 2009 lows. Pattern followers would describe the price action in recent years as an ascending triangle, with the lows in 2011 and 2012 getting progressively higher, while the 6100 caps the gains. Basic pattern analysis takes the height of the pattern and projects this onto the break. So using this logic the FTSE is looking set for a push up to its all time highs. The sentiment remains rather muted so the wider market is yet to follow the price action, but on wider positive sentiment this upside potential is warranted. The only major caveat to this outlook is that the market must keep inflation expectations low, as soon as the markets start to price in a change in the interest rate cycle, and an end to QE, a large percentage of the recent buying could quickly evaporate. For the medium term though the outlook remains solid with the UK looking set for a move to its 2007 highs. FTSE 100, Monthly Please click on graph above to open a larger image Text last updated, November 5th, 2012 The monthly timescale naturally takes the long term view so the commentary in this section will only be updated as when market events dictate. So regular readers of this report will only need to read the monthly and weekly sections on a relatively infrequent basis. However we include all the information to give new readers the full picture. The Monthly graph for the FTSE 100 quite clearly shows how the index posted an extremely powerful move into the end of the last century, first red line. From the all time highs in the index at 6950 the FTSE slumped 50% to the 2003 lows. In hindsight we can see this move as an understandable and even justifiable re-examination of the strong gains posted in the previous 20-30 years. The market currently remains well above these lows, which tells us that the Eurozone sovereign debt issues, technically at least, are not as significant as the general press would have us believe. The FTSE remains in a trendless state, having posted lower highs in 2007, and higher lows in 2008, converging black lines. Retracement levels calculated from the all time highs to the 2003 lows create some interesting levels. We suspect that these levels will continue to be of use for the quarters ahead, a break back under the 61.8% level would suggest a new trading range between 4367-5215 would be possible.  In summary then the FTSE 100 remains in a trendless state over the long term, with lower highs and higher lows, trading in the shadow of the TMT sell-off. Moves under the longer term trend line, far right red diagonal line, could trigger the start of a more significant retracement, as seen with the breaks lower in 2001 and 2008. The breaks above the 2011 highs have opened up more optimistic long-term targets, with moves up to the 2007 highs now seen on the cards, while the strong longer term trend holds. S&P 500 Graph, Daily Please click on graph above to open a larger image The S&P graph shows us how the US index had a softer spring in 2012 relative to the UK, but then posted a strong Autumn rally. Detailed by the S&P posting its highs in September/October against the FTSE which in March. The S&P graph below describes how the index looks to be posting a move to test its all time highs at 1576. S&P 500, Monthly Nikkei 225, Quarterly, Semi-log Please click on graph above to open a larger image Text last updated, December 3rd, 2012 Enclosed above is a quarterly graph on the Nikkei. We include this for those readers who may blindly assume that all major stock markets are in a perennial bull trend, with only temporary bearish aberrations. This shows that G7 nations can be, and indeed some have been, in major bearish trends for over 25 years. Contact Us For Spread Bet Sales:- 0044 (0) 207 894 8800 For CFD Sales/Traders:- 0044 (0) 207 894 8883 E-mail:- sales@cantorcapital.com Graphs Graph images are created on Bloomberg, and remain under copyright to Bloomberg. Depending on your email settings the images contained in this note may not be downloaded correctly on the first viewing. 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