FTSE 100 Technical Outlook

Monday, June 3, 2013, Marketing Communication FTSE 100, Daily Last week we stayed bullish in the near term, as the price action remained within the well defined trading range since November 2012. The slight nervousness that has continued in recent days has failed to be significant enough to break this more medium term bullish range. Keeping the index in ‘buy on weakness’ areas. Last week we highlighted the near term bullish leg with the bullish trend, darker red region, the price action has now posted a clear correction out of this range, with some negative implications. However due to the strong underlying trend the technical outlook remains skewed to the positive. The price action early last week broke under the initial minor support areas at 6650, which would have caused nerves amongst the buyers coming in late to the May rally. This sell-off has caused the FTSE to now give up much of the gains posted through May and has dropped down to the March highs. The RSI has unwound from overbought areas and down to an RSI support line, red line on RSI chart,. The price action is currently on its 20 day moving average and within a clear bullish medium term trading range, so the outlook remains positive albeit close to support areas. The S&P 500 Daily graph could be used as a trigger for a more cautious outlook, more below. FTSE 100, Weekly Last updated, May 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. Another impulse move higher brought us up to the highs of 2011.  From these highs the FTSE appears to have set up a combination correction. Where a simple abc correction has been followed by an ascending triangle c wave, (ABCDE). This possible count is giving quite an optimistic upside target limit. As Wave 3 of an impulse cannot be the shortest wave within an impulse wave of higher degree. Wave 3 on this count is less than the height of Wave 1, so we know that Wave 5 cannot move further than the highest of Wave 3 without negating this potential count. This level is up at 7136. This is the height of Wave 3 projected onto the low of corrective Wave e. So from an Elliott Wave perspective over this timescale there are bullish arguments for a move up through and beyond the all time highs, and that this strength could start to fail early in 2014. The highs of corrective waves b and d could be used as stop areas to negate this potential count, or the 2011 highs could be used for the more cautious. Also of interest is how the recent sell-off on the daily graph barely registers on the weekly chart. 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. 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, ghosted red region. 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. Nikkei 225, Daily, Semilog 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 just breached its comparable trading range. The bears will not get too concerned while the price action holds above the 38.2% retracement level at 13145, but it is the first of the indices covered to breach the bullish trading range that has been in place since November of last year. Naturally the bulls will hope that the S&P and FTSE 100 will fail to confirm this break. 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