The FTSE100 has rallied to the 7,000 level as uncertainty towards the UK political situation started to subside, causing sentiment towards UK stocks and risk-on assets to improve.
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 bears at the moment. The fact that UK stocks are not reacting much to the QE news is pretty bearish.
The first look at Q3 GDP from the USA economy was also bullish for the FTSE100. The USA is the largest trading partner with the UK, so this better-than-expected data is bullish for the UK economy.
We have also seen confidence return to the British pound as the former UK Chancellor took the top job. Basically, a rising British pound on the foreign exchange market shows investor confidence.
Gilts have also started dropping, which again hints that markets are starting to have more confidence in the United Kingdom economy, following weeks of disastrous Conservative Part blunders.
Sentiment has turned bullish again, which could suggest further price losses ahead for the UK100. I think the market is looking for a bearish reversal 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, 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 once again. However, I remain long-term bearish towards the UK economy.
UK100 Short-Term Technical Analysis
According to the four-hour time frame the UK100 is close to 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 upside of over 400 points if we start to break the 7,100 level. I would suggest keeping a close watch on the 7,100 level.
UK100 Medium-Term Technical Analysis
The daily time frame shows that a large wedge-shaped pattern is in play. The UK100 has also moved back under its key 200-day moving average, meaning the trend is still bearish.
If we see the UK100 staying below the 7,000 level, which is a key market pivot, I would suggest that we could easily start to see the UK100 trading towards the 6,700-price area again.