FTSE 100 Forecast: Nice Reversal on Monday

Ultimately, in the short term I anticipate more chop than anything else.

The FTSE 100 initially dropped to the 7100 level Monday only to turn around and show signs of life. By turning around the way it has, it looks like the FTSE 100 is going to continue to be very noisy, it’s likely that we will continue to chop back and forth in this overall area. In fact, when you look at the last several weeks, you can see that we have clearly been consolidating between the 7000 level underneath, and the 7300 level above.

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It’s also worth noting that the 50-day EMA is sloping lower and getting ready to cross below the 200-day EMA. It sits just above the 7300 level, and it adds even more resistance in that area. It should be noted that we are getting close to forming a “death cross”, which is a very negative sign and something that a lot of longer-term traders will pay close attention to. Because of this, I think there is a little bit of building resistance, not the least of which will be the fact that there are plenty of indices around the world that are falling due to the massive amounts of economic uncertainty out there. This of course has a major influence on how all indices behave, not just in the United Kingdom.

If we break down below the 7100 level, it will certainly will challenge the 7000 level. A break down below the 7000 level opens up the possibility of a drop down to the 6800 level. The 6800 level is supported as well, so breaking down below that would be a very bad turn of events. On the other side of the equation, if we were to break above the 7300 area on a daily close, then that would be a very good sign, perhaps opening up the possibility of a move to the 7600 level. I don’t necessarily think that it’s going to be easy to break out to the outside but I certainly would not argue with it. I would more likely than not look to other indices to see some type of secondary indicator, meaning that if other European indices are going higher, this one should fall right along. Ultimately, in the short term I anticipate more chop than anything else.