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FTSE 100 Remains Heavy as Bearish Crossover Nears

FTSE 100 Remains Heavy as Bearish Crossover Nears

Nick Cawley, Strategist

Talking Points

- Fibonacci support is expected to be tested, opening the way for further falls.

- A bearish moving average crossover would confirm further losses are on the cards.

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The FTSE 100 remains under the spell of the 100-day moving average with the UK index unable to close above the indicator in the last 10 trading sessions. And with the 20-day moving average likely to trade down through the 100-day average, a bearish crossover would be confirmed in the UK index, setting it up for further losses.

The first level of support would be expected at the 61.8% retracement of the April 19 – June 2 move at 7285, before the 76.4% retracement at 7210 comes into play. Below this the index should find support at 7191, a near two-and-a-half month low.

Chart 1: FTSE Daily Timeframe (December 12, 2016 to July 11, 2017)

FTSE 100 Remains Heavy as Bearish Crossover Nears

Chart by IG

And a look at the IG Retail Sentiment indicator shows that the percentage on traders net long of the FTSE is at its highest in three months, with sizeable increase in long positions built up both yesterday and over the last week.

FTSE 100 Remains Heavy as Bearish Crossover Nears

Retail trader data shows 57.2% of traders are net-long with the ratio of traders long to short at 1.33 to 1. The percentage of traders net-long is now at its highest since Apr 11 when FTSE 100 traded near 7379.2. The number of traders net-long is 84.6% higher than yesterday and 86.6% higher from last week, while the number of traders net-short is 26.7% lower than yesterday and 24.2% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests FTSE 100 prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger FTSE 100-bearish contrarian trading bias.

If you would like to get your free IG Client Sentiment trading guide, please click here.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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