Technical Analysis - FTSE 100

Monday, November 11, 2013, Marketing Communication FTSE 100, Daily, Semi-log Last week we felt that the FTSE looked vulnerable to some near term profit taking, but that the risk/reward on short selling was not favourable. Some small scale selling materialised through the week and on Friday this selling appeared to be gathering pace, however interesting price action occurred on Friday afternoon. On Friday the US non-farm payrolls numbers came in slightly better than expected, increasing the outlook for the underlying US economy and therefore increasing the likelihood that the date for Fed tapering will be brought forward. Rather perversely the US market came off quite sharply on this positive non-farm data as the index feared Fed tapering outweighed the positive economic implications. In this nervous environment the selling could have gathered pace. Friday's price action is of note as the buyers quickly moved in following this selloff and moved the market off these intraday lows into the close. Candlestick followers will notice that Friday’s price action posted a Hammer formation, often seen at a near term low. In summary then the market looked vulnerable to short term weakness and this materialised, the selling had an opportunity to gather momentum late on Friday, however it failed. Indicating that strong underlying buying momentum remains in the market. Leaving our positive medium term outlook and continued stance of buy on weakness, with current levels looking to be attractive add or entry levels. Moves under last Friday’s lows at 6643 are required to turn more negative. FTSE 100, Weekly, Semi-log Last updated, November 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 5 wave impulse move higher, red 1-5, followed by a simple expanded flat abc correction. From the 2011 lows the FTSE has posted a new impulse wave higher. Indicating the FTSE 100 is preparing a more sustained move up to fresh all time highs above 7,000. A general guideline in Elliott Wave analysis is that Wave 5 often relates to Wave 1, particularly when Wave 3 is larger than Wave 1, as in this case. Projecting the height of Wave 1 onto the lows of Wave 4 gives a medium term upside target on the FTSE around 7,220. These highs would allow the FTSE to match the positivity posted in the US markets and post new all time highs. This optimistic outlook remains while the 6,000 support holds. S&P 500, Daily, Semi-log The S&P 500, like the FTSE is showing signs of being over extended in the near term, however the moves from December and February detail how this condition can remain in place for some time. As on the FTSE some minor selling materialised last week on the S&P 500, and price action on Friday found support from the previous resistance, upper red diagonal. The RSI of the index has found solid support at the 40 level for the past 12 months indicating that the index remains in a strong bullish trend. We maintain our positive outlook and buy on weakness stance while the 40 level is held on the RSI. DAX Monthly The German DAX index has been in a strong trend from the TMT blowout lows in 2003, and has in 2013 matched the S&P 500 and Dow Industrials to post fresh all time highs. Giving an optimistic long term outlook on the main driver in continental European markets.  CAC Monthly The CAC40 has been under-performing the US, UK and German markets, however it has broken major upside resistance, the 2010 highs, red line, and looks set to follow its international partners higher for the remainder of H2 and into H1 2014. 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