The FTSE 100 is at a critical juncture after staging a major up move this week and recovering a huge portion of its former weekly losses as all the major global averages sank last week.
Warning signs continue to flash as sentiment strongly suggests that an imminent pullback is coming. The sentiment reading towards the index is one of the strongest ever for index.
According to the ActivTrader platform some 91 percent of traders are bullish towards the UK100. This is a huge one-way trading bias that suggests an epic price pullback could be about to happen.
Typically, it very bearish when we see large amounts of one-way negative sentiment starting to quickly form. The UK100 could struggle continue to head higher, as the charts across the lower time frames certainly suggest divergence is also present.
It should be noted that with 91% traders on just side of the trade, a massive move to the downside could happen at any time. This is a big fear for the FTSE100 as it continues to ignore the UK economy and looming energy crisis.
The sentiment bias is even worse because it represents retail trading position. Retail traders are more often than not on the wrong side of the trade, and especially during price trends.
Based on the current sentiment reading I think it is highly probable that we could see a pullback towards the 7,300 area in order to liquidate weak long or indeed shake them out.
UK100 Short-Term Technical Analysis
The four-hour time frame shows that the UK100 index is trapped inside a falling wedge pattern and is currently testing towards the top of the wedge, close to the 7,500-resistance level.
According to the four-hour time frame the FTSE100 has a bearish short-term bias still because it trades beneath all major moving average, and in particular the 50 and 100-period moving averages.
UK100 Medium-Term Technical Analysis
The daily time frame shows that a large, inverted head and shoulders pattern has clearly been formed. The pattern will only be made invalid if the price starts to trade beneath the 6,760 level.
I would suggest keeping a close eye on the 7,600-resistance level over the coming days because this is the bullish breakout spot for the FTSE100. It is also a potential rejection point.