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FTSE 100 Technical Outlook

Where next for the FTSE?

What a difference a day makes…

The FTSE started the week by touching 14-month highs and less than 48hrs later, the market is 200 points lower without any real change in newsflow.

It would appear that the underlying cause of this week’s sell-off has been investors growing concerns that the record levels of monetary and fiscal stimulus being pumped into the US economy may cause it to overheat – ramping up inflationary expectations.

Indeed, when we look at the timing of the sell-off, yesterday’s European trading was relatively quiet and the selling pressure didn’t kick-in until 7pm UK time.

With the US Labour Department set to release their Consumer Price Index Report on Wednesday, investors feel this may force central bankers to become more hawkish and hence look to raise rates quicker.

For the FTSE, when analysing the bigger picture, 3-year weekly candle chart (below), we can see that the market has found resistance at a previously broken zone of support – created by the summer 2019 swing lows.

We can also see that whilst the market has formed a strong uptrend since it’s lows in 2020, prices are only retracing the huge sell-off we saw at the start of the pandemic. And for those of you who follow Fibonacci levels, the index recently completed the 78.6% retracement of the Jan-Mar 2020 sell-off.

FTSE 100 Futures 3-Year Weekly Candle Chart

Zooming into the lower timeframe, daily candle chart, we can see that there are plenty of short-term support levels in place…

The first support level, which is being well and truly tested today, is the ascending trendline (steepest gold dotted line on chart below). Given the strength of today’s sell-off, we would expect this trendline to break.

The key area of support we will be looking for the market to hold is the April swing lows at 6,852 – this area along with the second ascending trendline should see buyers step back into the market.

FTSE 100 Futures 1-Year Daily Candle Chart