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FTSE Chart Analysis – Decline from New High May Be Just Getting Started

FTSE Chart Analysis – Decline from New High May Be Just Getting Started

2018-05-23 10:00:00
Paul Robinson, Currency Strategist
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FTSE Technical Highlights:

  • FTSE catapulted to new record highs, but don’t get too excited
  • Top-side trend-line to keep a lid on market at the least
  • A big-picture scenario could unfold in the weeks/months ahead

Check out the DailyFX Quarterly Forecasts to find out what is driving the FTSE and GBP.

FTSE catapulted to new record highs, but don’t get too excited

Yesterday, the FTSE traded to a new record close, and in the process, it hit a top-side trend-line extending higher since June. Top-side trend-lines, even at record levels, have been known to put a cap on advances, sometimes only briefly, and at other times these resistance lines have proven to be rather formidable.

For now, we’re looking for a pullback (which is already beginning today with risk sentiment wilting a bit). The first level of support arrives just under 7800, where the prior record high is situated, along with the very steep trend-line off the March low.

It would be a rather shallow pullback, but if the footsie is to continue its impressive run the market might quickly find buyers to keep the index propped up for a period of consolidation.

It would seem a deeper pullback is likely, though. The vertical rise is in need of a meaningful correction, which would likely lead to a decline below the prior record, perhaps down towards the 7600-area. If this is to be the case, then short-term traders are about to gain the upper hand from the short-side.

See this guide for 4 ideas on how to Build Confidence in Trading.

FTSE Daily Chart (Top-side t-line resistance)

FTSE daily chart with top-side trend-line resistance

A big-picture scenario could unfold in the weeks/months ahead

Pulling back to the weekly chart, there is one long-term pattern taking shape starting back a year-ago. A reverse symmetrical triangle, or ‘RST’ for short, may be forming with this most recent plunge and extension to new highs. Some of you may know the pattern as a “megaphone”.

Whatever you call it, the idea behind these patterns is that the expanding price action indicates a period of major indecision. These can resolve themselves as tops or continuation patterns. Typically, a meaningful pullback develops (hence part of the reason leaning towards a relatively deep decline from here), then if the market fails to turn back around the market undergoes a major decline.

If it can turn around with momentum after a pullback and break through the prior high another sizable leg higher is in the works. In either event, we have some time to worry about the big-picture pattern, we’ll discuss it when it becomes relevant. For now, the FTSE looks poised for weakness.

FTSE Weekly Chart ('RST' Pattern Could Be in the Works)

FTSE weekly chart with 'RST' pattern potential

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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