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27th May 2021. 10.54am

Regency View:

FTSE 100 Technical Outlook

FTSE funnelled into apex of wedge

Those of you who follow our Morning Report will know that we’ve been monitoring the FTSE’s latest consolidation phase very closely.

After hitting highs of 7,167 at the start of the month, prices have proceeded to carve out a series of lower swing highs and higher swing lows – creating a ‘wedge’ or ‘funnel’ pattern.

The wedge pattern signals three things:

  1. The market moving to a point of equilibrium – hence we’re seeing a high degree of randomness in short-term price action.
  2. Volatility compression – price volatility tends to be cyclical in nature and periods of compression are followed by periods of expanding directional price action.
  3. Mean reversion – all trends go through periods of reverting to the mean, and the FTSE is now back at it’s long-term ascending trendline.

Taking these three factors into account, and with the market now at funneled into the apex of the pattern, the only conclusive prediction we can draw is that any breakout is likely to have a fair degree of directional follow-through.

Hence our primary focus is to manage our existing trades and wait for the market to tip its hand.

FTSE 100 Rolling Futures Daily Candle Chart

FTSE 100 Rolling Futures Daily Candle Chart

FTSE 100 Rolling Futures Weekly Candle Chart

FTSE 100 Rolling Futures Weekly Candle Chart

Disclaimer:

This research is prepared for general information only and should not be construed as any form of investment advice.