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The FTSE100 broke its four-week winning streak last week as traders became more cautious over the economic recovery in the United Kingdom, amidst uncertainty about how long the current lifting of the third COVID-19 lockdown will last.
News that President Biden is proposing a massive Capital Gains Tax hike in the US also spooked stock markets across the world, however, analysts in the United States noted that the proposal was unlikely to gain support when it is presented to the US Congress.
FTSE100 traders that are bullish towards the index have been left frustrated, after an encouraging breakout above the 7,000-resistance level at the start of the month. The sour note now for FTSE100 bulls is that the leading UK index is currently unable to hold above the 7,000 level.
My personal opinion is that it will only be a matter of time before the FTSE100 starts to surge above the 7,000 level, and reach the 7,500 to 7,700 regions, purely based on the technicals, and abundance of bullish price patterns.
Another reason why the FTSE100 could be failing to rally right now is sentiment. The ActivTrader market sentiment tool currently shows that some 72 percent of FTSE100 traders are bullish right now.
Based on historical data, we need to see negative sentiment rising, and then look to fade the retail crowd. Until this takes place it could be a key reason why the FTSE100 is not rallying right now. It may be prudent to keep a close watch on retail sentiment over the coming days.
Once we do see a sentiment shift amongst the herd, particularly on the sentiment side, then it may be a great time to look to buy the FTSE100. The deeper the price retracement gets the more attractive the index will start to look as a value proposition.
FTSE100 Technical Analysis
Lower time frame analysis shows that the FTSE100 has formed a head shoulders pattern, with the neckline of the bearish price pattern currently located around the 6,860 level.
Should we see price weakness below the 6,860 level then a sell-off towards the 6,650 price region is extremely likely. If the pattern is invalidated then the FTSE100 could rally towards the 7,300 area.
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Higher time frame analysis shows the presence of an extremely large rising price channel, which the index has been trapped inside since the start if the year.
According to technical analysis the top of the price channel is currently located around the 7,525 level. The Parabolic SAR indciator on the daily time frame also shows that a buy signal will be generated if the price moves above the 7,030 level.
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