FTSE 100 Technical Analysis

Monday, June 10, 2013, Marketing Communication FTSE 100, Daily Last week we remained quietly confident that the recent sell-off was a period of natural profit taking and consolidation, as there had been no significant breaks of major technical support. The buyers have attempted to re-enter the UK market in recent days but as yet this has not been as confident as seen on the S&P 500. The current price action has dropped down to the 38.2% retracement area of the November to May move, at 6390. The FTSE has broken the trading range over this period, red region, matching the break lower posted on the Nikkei, see below. While the S&P 500 maintains its comparable trading range, see below. So while the Nikkei and FTSE 100 have broken their comparable trading ranges, the broader S&P 500 has not confirmed this break. On the graph above we have drawn an amended possible Elliott Wave count. On this count the recent moves up to multi year highs were the end of a 5 wave impulse. Often an abc correction that follows finds support from the low of Wave 4. So using this count we can see a quick bout of bargain hunting buying ahead, set for a positive move towards the 50% retracement level, around 6600, calculated from the recent multi-year highs and near term lows. The RSI has found support from the 40 area which acts as support in a bull trend. We suspect that the buyers will continue to attempt to move back into the market here, as those  traders that missed the May rally may see this a second opportunity. The bearish signal to monitor remains the S&P 500 trading range. While this holds the FTSE and Nikkei breaks lower have not been confirmed and we would expect the buying momentum to build in the coming days, on any such S&P failure however the FTSE could quickly fall to Wave 4 lows at 6222. FTSE 100, Weekly Last updated, June 2013 The graph above throws up a possible medium term Elliott Wave count on the FTSE 100. We can see how from the 2009 lows there was a fairly clear impulse move higher, Red 1-5, followed by a simple abc correction. From these lows the FTSE has posted a new bullish impulse wave higher, with the current price action just completing the 3rd wave. Elliott Wave Rules dictate that if this count is correct on any future weakness the FTSE cannot move into the range of Wave 1. As a result we would expect significant support from the Wave 1 highs, Gold line, which coincides with the 6,000 psychologically important level. This also suggests that Wave 5 ahead is set to post fresh all time highs above the highs posted in May 2013. So from these lows over this timescale there are bullish arguments for a move up through and beyond the all time highs in the months ahead, and that this strength could start to fail early in 2014. 6,000 can be used as a level to negate this bullish count. Also of interest is how the recent sell-off on the daily graph appears as a natural leg lower within the bullish trend. FTSE 100, Monthly Text last updated, May 12th, 2013 The monthly timescale naturally takes the long term view so the commentary in this section will only be updated as and 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 on the price graph. 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. From 2009 the FTSE has posted a strong recovery and currently is posting moves up to its all time highs, moves already posted by the S&P 500, Dow Jones and DAX. The FTSE has broken the upper bearish trend, black line, and continues to look set to follow the S&P 500 by posting a move up to its all time highs around 6950. 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. But while the resistance from the 2011 highs have been cleared, more optimistic long-term targets have been opened up, with moves up to the all time highs now seen as most likely, while the strong longer term trend holds. FTSE 350, Monthly Enclosed above is a long term chart on the FTSE 350, which unlike the FTSE 100, has broken through to fresh all time highs itself. This move indicates that the FTSE 100 was also set to post fresh all time highs in May, but only failed to do so by the over weighting of the under-performing banking and mining stocks. S&P 500 Graph, Daily This week we include a Daily chart of the S&P 500 as the broader US index posted a strong bullish trading range June to September last year. Following the correction lower the index has posted yet another robust bullish trading range, darker red region. The recent sell-off has failed to break out of this trading range. We do not see the buyers getting too nervous about any of the recent profit taking selling while the S&P 500 remains in this clearly defined bull trend. As a result those looking to get short on the FTSE or its constituents may need to hold off for a confirmation break lower on the S&P500. Without such a break the 'Buy on Weakness' stance that has proved so successful over the past 8 months should remain in place. Leaving a positive outlook for the weeks ahead unless the S&P confirms the Nikkei’s weakness and also breaks under its medium term bullish trading range, which would set up the likelihood of a more significant medium term retracement comparable to the moves seen in October/November last year. Nikkei 225, Quarterly, Semi-log Enclosed above is a quarterly graph on the Nikkei. We include this for those readers who may 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. This graph also details the spectacular percentage gains posted by the index over the past 12 months, moving from 8,000 to 15,000 in under 12 months, pulling the index up through the upper end of the long term bearish trading channel, and also opening up its 2007 highs, red line. Nikkei 225, Daily, Semi-log The Nikkei Daily chart is uploaded as the weakness in Asian markets acted as the catalysts for the recent profit taking and it continues to lead the way, this graph details how the Nikkei has breached its comparable trading range, and has attempted a bounce in recent days. The bears will be hoping that the current strength is a simple re-test of this break, with a failure and further weakness to follow. As above the S&P 500 could act as the catalysts for this selling, without any S&P 500 break, we would expect the recent buying to continue in the near term. 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