The FTSE 100 has surged back above its 200-day moving average as risk-on asset classes, such as stocks, come back into favour with investors following a notable sell-off over recent weeks.
Much of the optimism for UK stocks is coming from the fact that the new British PM Liz Truss is looking to implement positive economic changes for the United Kingdom and also new investment.
Should we see the UK becoming more outwardly looking and striking Brexit deals then the potential for sterling to catch a bid over new trade flows certainly does exist in the coming months.
However, with rising inflation and more aggressive rate action from the Fed it is questionable how much the UK100 can rise in such an environment, especially with the Bank of England remaining cautious.
The price action from the UK100 is one of the indices that wants to go higher. Traders have been scooping up dips towards 7,000 and this FTSE has been one of the best performing indices this year so far.
Sentiment has turned bearish again, which could suggest further price gains ahead for the UK100. I think the market is looking for a bullish breakout also down the road.
In an ideal world sentiment should be heading in the opposite direction of the trade. This is because retail traders are normally on the wrong side of the trade, and especially price trends.
Based on the current sentiment reading I think it is highly probable that we could see the upside starting to gain momentum. However, I still feel bearish towards the UK economy.
UK100 Short-Term Technical Analysis
The four-hour time frame shows that the UK100 index has broken a key moving average and is starting to move upwards towards the next major resistance cluster, around 7,500.
According to the four-hour time frame the UK100 has reached its short-term objective after invalidating a notable head and shoulders pattern.
UK100 Medium-Term Technical Analysis
The daily time frame shows that a large wedge-shaped pattern has formed. The UK100 has also steamrolled back above its key 200-day moving average, meaning the trend is once again bullish.
If we see the UK100 staying above the 7,400 level, which is a key market pivot, I would suggest that we could easily start to see the UK100 trading towards the 7,700-price area.