Bouncing After a New Lower Low?
The FTSE 100 could visit fresh lows and is consolidating the bounce move after reaching the lowest level of the year at 6,851.6 pts on October 26th. The index spiked below the previous low at 6,866.9. This bounce move is aligned with the movement developed by the leading global indices. During this year, the British index is losing near 8 per cent (YTD).
From the second half of May, when the price reached the highest level of the year at 7,903.5 pts, the British index is developing higher lows and lower lows, providing a first signal of market sentiment from bullish to bearish. Currently, the price is moving in a pivot zone at 7,100 pts, and it is below the 200-days moving average. The price’s position concerning the moving average, adds a new argument to consider the change of the market sentiment from bullish to bearish.
The traditional technical analysis theory says that if the price test two times or more a support level is highly probable that the price breaks down the support. Considering this concept, if the price breaks under the 6,866.9 level are likely that the price visits fresh lows.
So where Next?
Before we consider the breakdown, we have to observe what will make the index in the next resistance area bounded by the last swing and the 200-days M.A., i.e. between 7,290 pts and 7,395 pts. If the price rejects this resistance area, we foresee that the price could see new lows.
Taking this bearish scenario, the breakdown of the 6,866.9 pts could lead to the FTSE 100 index to drop as a first target at 6,434 pts, and the second target at 6,060 pts. The invalidation level of this scenario is located at 7,790.2 pts.
Chart 01 – UKX – FTSE 100 Index daily chart.
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