FTSE 100 Price Analysis: FTSE 100 Flirts with Key Fibonacci Levels
FTSE 100 Forecast:
- Fibonacci levels on FTSE 100 are showing key spots of potential support and resistance
- Resistance potential remains around 6200, a spot of prior swing support
- MACD remains below the zero line but is the crossover an indication that the trend may reverse?
FTSE 100 Finds Resistance at Key Fibonacci Levels
While the reopening of the economy has provided some relief for bulls in the FTSE 100 index, buyers don’t appear to be quite as confident as those in the Dow, S&P 500 and other major indices. Despite a strong reversal from the March 2020 lows, Fibonacci levels continue to guide support and resistance levels which has helped to cap the four-month advance , despite the significant momentum that was previously driving the move.
The monthly chart below highlights Fibonacci levels from three major moves. The first Fibonacci retracement (pink) represents the major move from the April 2009 low to the May 2018 high. The second Fibonacci retracement (blue) is plotted between the August 2011 low and the May 2018 high, while the third Fibonacci retracement (purple) is taken from the shorter-term move spanning from the May 2018 high to the March 2020 low.
FTSE 100 Monthly Chart:
Chart Prepared by Tammy Da Costa, IG
MACD Remains Below the Zero Line
From a technical perspective, current price action has seen momentum shift from the strength on full display in late-March through May. In June, FTSE price action ran into a confluent spot of long-term resistance and since, buyers have been thwarted and new highs have had to remain on wait. Correspondingly, a range has formed as shown on the four-hour chart below.
Meanwhile, the Moving Average Convergence/Divergence (MACD) indicator, which helps to measure both the momentum and the direction of the trend, suggests that the while prices remain below the zero line, suggesting that the FTSE may be oversold, bulls may begin to exert pressure, as indicated by the MACD crossover.
FTSE 100 4 Hour Chart
Chart prepared by Tammy Da Costa, IG
The bullish move that spanned from the March lows into May ran into a batch of resistance levels that have since held buyers at bay. Since that longer-term resistance has come into play and since the range looked at above has continued to build, the potential for a break, in one direction or the other, has appeared to align with ongoing fears surrounding the coronavirus pandemic, Brexit negotiations and, more recently, growing tensions between the UK and China. The fact that mean reversion has built-in highlights the acrimony around current events; but the potential for a bearish move cannot be ruled out, given that sellers continue to retaliate, apparently determined to push prices to support.
For bulls, a break above the psychological level of 6200 and above 6217, the 38.2% retracement of the long-term move, may lead to a breakout potential towards 6318.2, the 50% retracement of the secondary move, which may help to form a new level of resistance.
Contrary to this, a break below the psychological level of 6100 and further, below 5981, the 38.2% retracement of the short-term move, may result in deeper downward pressure, with 5942.4, the 61.8% Fibonacci level of the secondary move, coming in as potentially deeper support.
What do Retail Traders Think?
IGCS shows that, at the time of writing, 70% of retail traders are holding long positions in the FTSE 100. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests that prices may continue to fall.
--- Written by Tammy DaCosta, Market Writer for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.