FTSE Technical Analysis

Monday, June 24, 2013, Marketing Communication FTSE 100, Daily The FTSE has now slipped down to the 61.8% retracement level, calculated over the November 2012 May 2013 moves, red lines on chart. The RSI support at 40 has failed, black line, which starts to suggest that the selling is not merely a short term bearish leg within a longer term bullish trend, but does instead signal the possibility of a new bearish phase. Using the possible Elliott Wave count on the graph above the price action has now breached the low of Wave 4, which can often act as a support for ABC corrections. So for Elliott Wave followers the sell-off from the May highs now looks to be a more significant zig-zag correction lower, with the current lows only the start of the C wave correction lower. The FTSE failing and breaking the 6090 support, the 61.8% retracement, would cause nerves amongst the buyers, and could well trigger another wave of selling that a more bearish zig-zag correction would be indicating. Had the S&P 500 held its comparable trend, (more below) we could have seen buyers interested in picking up the FTSE at the current levels. Active traders may consider bargain hunting buy here, using the 6090 area as a stop and looking for moves back to the 50% level at 6240. The more medium term investor could also start to accumulate now, using the 6,000 are as a stop level, more below. 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 expanded flat abc correction. From these 2011 lows the FTSE has posted the start of a new bullish impulse wave higher, with the current price action in Wave 4. 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 moves above the highs posted in May 2013. So using this count over the medium to longer term 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 has brought the index down towards the longer term bullish trend, red diagonal line, and towards major support of the 2011 highs. So in the medium term the FTSE has dropped down towards some major support areas, and bullish trend lines which may well attract buying interest from the longer term players. Only moves under the 6,000 area would start to create more serious downside concerns. 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 broke 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 has, unlike the FTSE 100, already broken through to fresh all time highs. 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 in the index. S&P 500 Graph, Daily For the past few weeks we have highlighted the breaks lower in the FTSE 100 and the Nikkei 225 and that while the S&P 500 maintained its comparable trend, red region, we would refrain from turning more outright bearish. The S&P graph above details how the sell-off on the latest FOMC press conference has pulled the  index down out of the strong trend from November 2012.The price action has brought the index down to the RSI support, black line, which has been tested three times in recent days. The bulls may attempt to gain confidence from this 40 level on the RSI, the FTSE graph above however shows how the UK index breached its comparable level. Despite this break the S&P 500 continues to out-perform the FTSE and the Nikkei as the markets reflect the current fundamental story; where the Fed believes it can now start to slow QE due to the increasingly solid US economy. While the Nikkei has largely rallied due to Abenomics and is likely post extreme falls if the central bank in Japan was to mirror statements made by the Fed. The Fed has essentially stated that the US economy is in strong shape, naturally this should be bullish for the stock markets. So the current moves can be described as the start of the re-evaluation of price levels in the expected post QE era. This is likely to be a lengthy process and may well not be resolved for some months. Often when there is such clear divergence between the S&P 500 and the FTSE there is the opportunity of a pair trade, of buying one index versus selling the other. Looking for the divergence to unwind. But while we believe that the current divergence is driven by fundamental forces we would not recommend using this technical trigger at these levels to buy the FTSE 100 and selling the S&P 500. While the ratio is at extreme levels the divergence could remain in place for some time. Rather we simply see international investors staying overweight in US equities, as equities in general continue to see inflows from the bond markets. Nikkei 225, Daily, Semi-log The Nikkei Daily chart is uploaded as the weakness in Asian markets acted as the catalyst for much of the recent profit taking. What is interesting to note is that while the Nikkei has sold off sharply from the May highs, it has found support from the 50% retracement level, calculated from the October 2012 lows to the May highs. This is significant as the FTSE 100 has fallen down to its comparable 61.8% level. So the FTSE has had a much tougher time in recent days in comparison. Suggesting that investors in Japan have higher confidence in Abenomics and the outlook for the Japanese recovery than UK investors have in George Osborne & the BofE and the outlook for the UK economy. While the N225 has found support at the 50% level it will be difficult for the bulls to gain much momentum unless the major resistance around 13570 is cleared, black line. This is the original trend break level in May, and the highs so far in June. The current sell-off has proved tempting to the bargain hunters, lifting the index up through the 38.2% level. But without moves higher through this resistance at 13570, we would suspect that this buying interest would evaporate quite quickly. Leaving a bargain hunting buy on weakness environment in the near term, but that the risk./reward does not favour fresh buying here, until moves through 13570. The Nikkei failing at these levels and dropping back under the 38.2% retracement level at 13145, would signal the possibility of a rapid retest of the 50% retracement level down at 12281. Nikkei/FTSE Ratio, Weekly The Black/Green graph above is the weekly ratio graph of the Nikkei divided by the FTSE 100. We can see how the ratio has broadly traded in line with weekly GBPJPY FX cross graph below. GBP/JPY, Weekly GBP/JPY graph posted to highlight the broad correlation in general trends with the Nikkei/FTSE 100 ratio graph in recent years. Nikkei/FTSE Ratio, Daily The Green/Black graph above is the daily ratio graph of Nikkei 225 and the FTSE 100, detailing how over the daily timescale the ratio of the two indices, continues to trade in line with the FX cross, graph below. Also of interest is the high correlation in recent weeks between the Nikkei/FTSE 100 Ratio graph to the cash Nikkei 225. Where both graphs have been in strong uptrends since October 2012, only to break this trend in May, to currently find support from retracement levels calculated on the medium term move. GBP/JPY, Daily GBP/JPY graph posted to highlight the expected correlation in general trend with the Nikkei/FTSE 100 ratio graph. Nikkei 225, Quarterly 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, pulling the index up through the upper end of the long term bearish trading channel, and also opening up its 2007 highs, horizontal red line. CFD Sales/Traders 0044 (0) 207 894 8883 cfdsales@cantor.com Equity Spread Bet Sales 0044 (0) 207 894 8800 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. Select the view 'Web version' link on the header, which will open a browser window that will display the images correctly. 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