What’s inside:

  • FTSE 100 on the verge of confirming a double-top formation
  • A close below the 2016 trend-line, and June low will be an important event
  • Initially targeting 7100 in the event of a technical breakdown

Find out in our Q3 Forecast what’s driving the FTSE 100 & Sterling this quarter.

A week ago, when we last looked at the technical posturing of the FTSE 100, we were discussing the turn higher it was making towards new record highs. It had been a choppy market to trade, but overall the trend since last year has been quite clear with higher highs and higher lows marking a generally healthy market.

The last 2 ½ days (we could still have a reversal higher today) has been as clean and swift of a move as we have seen in months. An uptick in volatility across the risk-spectrum is upon us, a welcomed event for traders (for investors, not so much). What does this mean for the FTSE? The down-move could be of importance, because that sequence of higher highs and higher lows extending back to last year is under threat of being turned on its head. The trend-line rising up from the February 2016 low passing under the June/’Brexit’ low is also on the verge of getting cleanly broken (trading well below now on an intra-day basis, need to see where the market closes before calling it an official break).

A clean break of the 2016 trend-line and a decline below the late-June low at 7302 would mark a lower low from what could amount to a double-top earlier this week. Should that come to fruition it would indeed be an important development, one kicking off a trend towards lower prices as the lower-low would also constitute the break of the neckline of the double-top. There is the 200-day not far below the June low, but by then it may be nothing more than a speed bump for shorts as the technical picture will have already become tilted towards risk aversion.

The key to a bearish thesis is a strong daily close below both the 2016 trend-line in addition to the June low before getting too ‘beared up’. But should we see that then the 7100-line is a good spot to look for the footsie to decline to before possibly finding buyers. The measured move target (based on the height of the pattern) for the double-top pattern is around 7050.

FTSE 100: Daily

FTSE 100 Goes from Bull to Double-top in One Fell Swoop

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---Written by Paul Robinson, Market Analyst

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