FTSE Technical Outlook – Big Support in Place Following Breakout
- FTSE convincingly broke out above big resistance in 7550/600-area
- Old resistance becomes new source of significant support
- Stay above and outlook in favor of bulls, fall back below and the script turns negative
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Last week, when we discussed the FTSE we were making note of big resistance in the area surrounding record highs, 7550/600. The first approach early last week found sellers, but proved to be only a small batch as the footsie convincingly overcame the barrier in place since May. It came easier than initially thought.
To put it simply, at this juncture, we have a case of ‘old resistance becomes new support’. The 7550/600-area should prove to be a solid backdrop for longs given how firmly it held in place as resistance. A strong breakdown below support back into the multi-month range would be cause for pause and possibly bring into play a favorable environment for short-sellers. But not until then…
As long as support holds the FTSE should continue to carve out higher levels. As far as targets are concerned, we’re in uncharted territory with no visible lines of resistance to contend with. Looking at the size of the range from May through most of this month, a 300 point of more rally could be in store as the new year arrives. For a sizable move to happen, though, risk markets in general will need to stay firm and a weak pound would also be beneficial, but not entirely necessary.
Overall, the fact the breakout to record highs came after repeated rejections around the same level is a solid positive, and as long as 7550/600 holds the trading bias is in favor of ‘would-be’ longs.
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---Written by Paul Robinson, Market Analyst
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