The FTSE 100 is so deeply oversold the only viable trade would be to the upside

With the FTSE 100 trading below the 6,250 points at the end of the previous week it seems that we are in a whole new territory now. The decline was steep and fast and the UK index lost almost 500 points over a week so at this time all predictions are hard to come by.

The technical side of things definitely suggests that with the FTSE being so heavily oversold a correction is due. And indeed this morning the UK market opened significantly higher climbing to the 6,350 level. However is this enough a hint to built our whole analysis on it? Not really, we need to take a look towards the fundamental factors that would give us an idea of what’s to come.

So this week, the focus is mainly on the UK inflation levels due tomorrow and the release of the minutes from the Bank of England’s last meeting on monetary policy a couple of weeks ago. I think it would be inappropriate to speculate how these two events will play out but if I had to guess I would say that I would like to see a hefty correction higher for the FTSE 100.

Again, with the London benchmark index being so extensively oversold I wouldn’t advise any moves towards lower levels at this time. This is not to mean that another swing lower is impossible, I merely suggest that the risk factor in such a move outweighs any potential reward. So we will only focus on a potentially bullish scenario.

For this to take place I would like to see a break above today’s high, I would like to see the FTSE 100 moving higher than the 6,350 points. Should this development take place then my analysis suggests that the next targets for this reversal are the 6,430 points and the 6,570 points’ area in extension.

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Alpesh Patel uses Sharescope Pro for his investment analysis