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The UK100 turned sharply lower last Friday, following bearish news that six European countries will be receiving COVID-19 vaccine deliveries later than anticipated. The news sent European stock markets reeling, and the leading UK index shiftily followed.
Other factors at work causing the latest pullback in global stock markets and the FTSE100 include higher than expected US weekly jobless claims, negative US retail sales, and fears over rising US inflation, and a healthy dose of buy the rumour and sell the fact towards Joe Biden’s $1.9 trillion relief package.
Stock markets had appeared tense prior to the recent correction in stock markets, as fears over the Italian politics caused Italian and German bond spreads to wide, while rising COVID-19 infections across the globe started to chip-away at market sentiment.
The UK100 briefly dipped under the 6,700 level during Friday’s pullback in global stock markets, however, bulls quickly stepped in, and took the index back towards the 6,750-resistance area.
Perhaps the biggest test for the UK100 this week will be how broader financial markets cope with the prospect of dwindling global growth, inflationary pressures, and rising COVID-19 infections. The index is likely to break to the downside if bearish market sentiment spills over into early-week trade.
Oil and pharmaceutical companies, which make up a heavy weighting of the UK 100, are likely to come under pressure if the risk-off market tone continues. Traders should also be aware that Burberry and Dixons Carphone are releasing third fiscal quarter earnings this week.
From a technical standpoint, the index still looks very good while the price trades above the 6,700 level. The fact that bulls quickly defended this key technical area on Friday is certainly encouraging in the short-term.
UK100 Short-Term Technical Analysis
The one-hour time frame currently shows that the UK100 is trapped inside a bullish falling price channel. Typically, falling price channels break to the upside, and particularly so during pronounced uptrends.
According to technical analysis, the falling price channel is currently located between the 6,815 and 6,670 levels. During Friday’s sudden price drop, the UK100 bounced close to the bottom of the channel but did not fully test trendline support.
Source by ActivTrader.
The fact that the price did not fully test the bottom of the price channel could suggests that sellers could test one more time towards the bottom of the channel for technical confirmation.
According to the overall size of the falling price channel, a directional move of around 150 points should take place once a break from the channel occurs.
UK100 Medium-Term Technical Analysis
Looking at the daily time chart the overall importance of the 6,700 level is once again underscored, due to the presence of a key long-term trendline, which the market once again tested on Friday.
The strong bounce from the long-term trendline certainly points to continued demand for the FTSE100 on technical pullbacks. Furthermore, a recently invalidated head and shoulders pattern continues to point to 7,000 as a potential bullish target.
Source by ActivTrader.
A large, inverted head and shoulders pattern will also form if the UK100 reaches the 7,800 level. It is also worth looking at key moving averages. The UK100 closed the week below its 7-day moving average, at 6,800. This is a key area to watch if a recovery takes hold.
Also, the index’s 20-day moving average is a key downside level to watch if the correction continues and is located at 6,625. The 50-day moving average remains some way away and is located at 6,470.
