The FTSE 100 is under pressure below the 7,000 level as uncertainty towards the UK economy continues to plague sentiment towards UK stocks and the risk that could lay ahead.
Yesterday, the Bank of England announced a new form of QE in the shape of 20-year bonds in order to sure up the bond market from ongoing market stressed that could harm the system.
UK yields have fallen since the details were announced and GBP has strengthened, while UK stocks have staged only a mild recovery from the worst levels of the month so far.
The QE programme showed that up to GBP 5 billion per action initially, however, the parameters under review (sizes could be changed). And the first auction today between 1400-1430 GMT.
With this in mind keep an eye on the market pivot level, which is 7,000. This is basically the pivot point for the bulls and bear at the moment. The fact that UK stocks are not reacting much to the QE news is pretty bearish.
Sentiment has turned bullish again, which could suggest further price losses ahead for the UK100. I think the market is looking for a bearish 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 downside starting to gain momentum. However, I still feel long-term bearish towards the UK economy.
UK100 Short-Term Technical Analysis
According to the four-hour time frame the UK100 has ignited notable head and shoulders pattern. I think we have already seen part the target reached, so a rebound of sorts does make sense.
The size of the pattern implies that we are about to see a move to downside of over 400 points if we start to break to the downside. I would suggest keeping a close watch on the 6,850 level.
UK100 Medium-Term Technical Analysis
The daily time frame shows that a large wedge-shaped pattern has been broken. The UK100 has also moved back under its key 200-day moving average, meaning the trend is once again bearish.
If we see the UK100 staying below the 7,200 level, which is a key market pivot, I would suggest that we could easily start to see the UK100 trading towards the 6,500-price area.