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FTSE Technical Outlook: Falls off a Cliff, Selling Looks Overdone

FTSE Technical Outlook: Falls off a Cliff, Selling Looks Overdone

2018-02-06 09:32:00
Paul Robinson, Strategist
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FTSE Highlights:

  • FTSE decline off the highs has been fierce, with global markets falling apart
  • The drop is bringing an important area of support into play around 7100
  • Looks like near-term capitulation; tactical considerations outlined

What is driving the FTSE and GBP this quarter? Find out in the Q1 Trading Forecasts.

The decline off record highs has been marked by clear acceleration the past few sessions with increasingly larger down days. The drop today looking like the kind of capitulation-style selling you expect to see prior to a low, even if it's only short-lived. To start this morning, the low so far is coming from not far beneath an important area of support surrounding the 7100-level dating back to October 2016.

If the FTSE can maintain the day low of 7079, and preferably much higher than 7100, then a bounce could unfold quickly. There will be sizable resistance to watch, though, not that far ahead. The bottom of the range which developed during the second half of last year was breached this morning, and should the day close below it, the underside of the range will be our first area of resistance, ~7300. If this is the 'capitulation day', then a rally back above is likely to develop soon.

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FTSE Daily Chart

FTSE daily price chart, looks like capitulation

From a tactical standpoint, this type of market environment is best for nimble short-term traders looking to play volatility. There will be big price swings in both directions as the market sorts itself out. For those who have been holding a short position as a swing-trade, implementing a trailing stop strategy would be prudent action for protecting gains. Would-be longs may be best served by waiting for price action to firm up before getting too involved, catching falling knives is a dangerous business.

If you’d like to listen in on live analysis pertaining to global equity indices (and commodities), you can join me every Tuesday at 10 GMT time for my technical insights.

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---Written by Paul Robinson, Market Analyst

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