How long will FTSE 100 remain trapped in limbo land?

by Alistair Strang from Trends and Targets |

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After an impressive recovery yesterday, our chartist studies near-term potential.


There are times when the market is kind enough to confirm where a trend is. Perhaps all these folk who visited England's South Coast beaches made the FTSE 100 pause for thought, displaying warning of trouble ahead.

Needless to say, I'm being a little hypocritical, visiting a beach locally in 28c temperatures at 4pm.

But in defence, there were only nine other people (and their dogs) in evidence, making social distancing easy on 2-plus miles of sand. Scotland remains in lockdown.

The warning signal, along with the market trend, is shown on the chart below. Visually, the FTSE broke the red uptrend during the session, but was carefully recovered above the trend.

As the inset on the chart below highlights, care was taken to ensure the market closed the day in "safe" territory.

This level of attention is often fascinating, usually telling us the market is perfectly aware of a trend, proving it can be broken, choosing to present the case of a closing price languishing in the land of sanity.

From our perspective, the next signal shall be weakness below 6,029 points as this gives an official "lower low" which tends to confirm a trend has changed.

In the case of the FTSE, weakness next below 6,029 points brings the risk of reversal to an initial 5,855 points with secondary, if broken, at 5,635 points. And hopefully a rebound.

We've opted to display the implications, should 5,635 break and wonder if the market was "girding its loins" in fear of all those folk at Bournemouth provoking a theoretical second wave of Covid-19?

Presently, we've absolutely no idea the real reason behind the trend break as it happened at 08:15am, long before the media started self-righteous salivating over events on the South Coast, but one important detail was revealed.

The uptrend since the Covid-19 drop can be broken and now, this uptrend risks proving fragile.

Source: Trends and Targets      Past performance is not a guide to future performance

As for the near(er) term, we shall be fascinated if the FTSE stumbles above 6,155 points as this risks triggering recovery to an initial 6,191 points with secondary, if bettered, a confident looking 6,245 points.

This certainly sounds like a nice scenario and, according to the chart, shall keep the market trapped in limbo land between the blue downtrend and red uptrend.

The alternate near-term scenario is of weakness below 6,092 points as this risks producing reversal to an initial 6,050 with secondary, if broken, calculating at 5,944 points. 

Source: Trends and Targets      Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang, or interactive investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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