The UK 100 remains trapped in a period of price consolidation as traders and investors await the next major directional move in the leading UK index. The is best highlighted by the ATR indicator, which shows that the index’s Average True Range on a daily basis is currently at its lowest level since February 2020.
The FTSE100 traded with a cautious tone last week, especially since many UK mining stocks remained under pressured due to the pullback in precious metals, while large oil companies, like BP, awaited the outcome of the OPEC meeting.
Going forward, the fundamentals and the technicals surrounding the FTSE100 look pretty solid, especially if we consider that the UK is starting to come out of lockdown, alongside parts of the United States.
While the ongoing lockdowns in Europe remain a drag, bullish sentiment towards the Biden administrations infrastructure spending bill and the UK economy could help the short to medium-term prospects of the FTSE100.
Something we may need to see in order for the FTSE100 to rally is a strong technical breakout, and sentiment shift, as buyers struggle to breach the yearly high, retail traders are overly bullish towards the index right now.
FTSE100 Sentiment Analysis
The Market Sentiment indicator on the ActivTrader platform currently shows that some 69 percent of traders are bullish towards the FTSE100 right now. This could indicate a level of short-term complacency, as traders incorrectly bet that the index will start to rally alongside other leading US index’s.
In order for the index to start to push higher, and take out the January trading high, we probably need see bearish sentiment towards the UK100, as retail traders are not always, but are typically on the wrong side of emerging trends. The current sentiment suggests it may be hard to break the 6,800 level in the near-term.
FTSE100 Technical Analysis
The four-hour time frame shows that the FTSE100 is forming an inverted head and shoulders pattern, which is considered to be amongst the strongest type of bullish reversal patterns in existance.
According to the overall size of the bullish price pattern, a move above the 6,816 resistance level could send the UK100 towards the 7,000 level.
Higher time frame analysis shows that an extremely head and shoulders pattern will be invalidated if bulls can rally the index above the current yearly trading high, close to the 6,950 level.
If the bearish pattern is finally invalidated then a rally of close to 800 points in the UK100 should be expected, which should take the FTSE100 towards the 7,700 resistance level over the medium to long-term.