Since the last time I wrote to you we’ve seen the FTSE 100 trading sideways for an extended period of time and actually since the start of the month the London index is finding it hard to break out from this directionless formation. In my last analysis we were faced with a similar dilemma and as we did then we will now lay out the possible scenarios that the FTSE will follow as soon as it exits its current pattern
Since the beginning of the month the index has been stuck between the 6,100 and 6,200 points’ levels looking for direction but finding none. Any attempts to pick up any momentum towards higher or lower levels have been met with traders’ lack of confidence and the index was left stranded midway. As technical analysts we need to keep our calm and wait for the FTSE to reveal its true intentions and then follow it towards the direction it has picked.
So where are my pivot points, which are the levels I am waiting to be broken before taking any action? To the downside I think it’s clear that for the FTSE to pick up any serious momentum and attempt to really correct lower the support lies at the 6,100 points’ level. This is the level that has supported any recent attempts to break lower and it was the strong resistance the kept the FTSE trading lower up until the end of February and was later transformed from resistance to support.
So to make any serious trades towards a reversal lower I think we need to see a clear break of the 6,100 points’ level and should that take place then the 6,000-6,030 points’ area is my first target. This is an area that has been tested many times in recent weeks and I believe that it will attract traders’ attention should the FTSE start declining.
However, we also need to be prepared in case the FTSE 100 finds enough support to make the break into higher ground even though it looks like the momentum behind the index’s recent rally has been spent. There’s always the case that the London index breaks to the upside and in that case what I would personally want to see before pulling the trigger is a break above the 6,200 points’ level.
Should the FTSE attempt to break into fresh highs and establishes an base of support above the 6,200 points then I believe that it’s clear that the next stop will be the 6,300 points’ area. This is the level where the FTSE ended last year before running that impressive rally to the downside and if we are to see an extension of the current rally higher then this is the area I would place my targets.
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