The FTSE 100 has finally started to break to the upside, following weeks of narrow trading ranges and tentative price consolidation above the psychological 7,000 support level.
A rally in UK miners and leisure stocks gave the FTSE100 a much-need boost higher, as did the recent United Kingdom Services Purchasers Mangers Index, which came in at its strongest since 1997.
The service sector makes up a significant portion of the United Kingdom’s economy, with some economists estimating it could be as high as 80 percent. Therefore, a strong Services PMI reading tends to be bullish for stocks in general, as a rising tide lifts all ships where the service sector is concerned.
Sterling weakness was another major bonus for the FTSE100 last week. The index tends to have an inverse relationship with sterling, so last week’s drop in the GBPUSD pair was another boost for the leading UK index.
Bullish sentiment towards the UK100 also finally dropped last week, this is something that I had been waiting to happen. According to the ActivTrader platform some 62 percent of traders are bearish towards the UK100 right now.
The overall sentiment towards the FTSE100 has now dropped significantly. Last week a 75 bullish bias was in play, meaning that a big sentiment shift has happened. Now that traders are turning ultra-bearish, the conditions for a further rally look excellent.
UK100 Short-Term Technical Analysis
The four-hour time frame shows that a bearish head and shoulders pattern has been invalidated. According to the overall size of the invalidated pattern, I would expect a coming rally towards 7,500.
Should we see any pullbacks from the 7,250 or 7,300 levels of the coming days and weeks, buying dips towards the head of the mentioned pattern looks to be the best strategy.
UK100 Medium-Term Technical Analysis
The daily time frame show that the UK100 is approaching key falling trendline resistance around the 7,500 level. This is a potential pit stop in the interim, and an area the FTSE100 could pullback by a few hundred points if the rising trendline holds.
It is also noteworthy that the FTSE100 is approaching its all-time, which is around 7,770. I think if the index breaks the all-time high, then a parabolic run could happens towards 9,000 could actually happen.