Português
Español
Français
русский
The UK 100 suffered a mighty drop on the weekly open yesterday, as traders abruptly dumped UK stocks over fears that a new strain of COVID-19 could cause further economic devastation to UK economic activity.
Traders have very few reasons to be bullish towards the UK 100 at the moment. Even an agreement over a massive $900 billion stimulus package from the U.S. economy has failed to lift the markets mood.
Should we see the new, and more easily spread variant of the COVID-19 virus being found in other major economies then the recent drop in the UK 100 could look like just a minor blip. More worryingly, if this new strain finds it’s way to the United States or even China, we could see a huge sell-off in global equity markets similar to one that took place earlier this year.
Traders that regulary follow the UK 100 will know that the index has a close link the S&P 500 and Nasdaq during the US trading session. I can only imagine the carnage that could ensue in the UK 100 if we see US stocks going into a full-blown meltdown over the coming weeks.
Technically, the set-up is in place for the UK 100 to take a major leg lower if the 6,245 level is broken this week. In fact some signs are starting to emerge that indeed an interim top may already be in place now, around 6,640.
UK100 Short-term Technical Analysis
The four-hour time frame is highlighting that a massive head and shoulders pattern is starting to take place, following the early-week drop below the 6,480 level.
Sellers now need to move the price below the 6,245 level to activate the bearish price pattern. According to the size of the potential bearish reversal pattern, the UK 100 could decline towards the 5,855 area.
Source by ActivTrader.
Should we see a complex head and shoulders pattern forming then the UK 100 may be liable to stage a series of technical bounces from the 6,245 to 6,200 area, before a decisive downside breakout occurs.
Bulls face a formidable task at this stage, and will need to rally the UK 100 back above the 6,640 level to full invalidate the mentioned bearish price pattern.
Key support below the 6,350 level is currently found at the 6,310 and 6,275 levels, while key resistance is found at the 6,450 and 6,525 levels.
UK 100 Medium-term Technical Analysis
The daily time frame clearly shows a path towards the 5,855 level for the UK 100, and is certainly aligning with what the short-term technicals are currently suggesting.
According to technical analysis on the daily time frame, a bullish breakout from a large falling wedge pattern took place in early-November. Once the breakout took place the UK 100 went on a near one-way ride towards 6,600.
The UK 100 is very technical, and has may be preparing to retests this former key breakout area, around 5,855. Indeed, I suspect this is exactly what we may see with the mentioned falling wedge pattern breakout.
Source by ActivTrader.
Amazingly enough, the trendline from the intial falling wedge pattern breakout is located around the 5,855 level, which is almost exactly the target of the bearish head and shoulders pattern I previously mentioned on the four-hour time frame.
This could be an interesting week for UK 100, and especially since the techncials and fundamentals appear to be aligning.
