The FTSE 100 finished the week under the 7,000 level after some of the largest indices in Europe and the United States suffered large bearish outside reversal days due to concerns over global growth.
For sometime now the 7,000 level has been rocking solid support, with any moves towards this key psychological level aggressively bought buy FTSE traders. The fact that the weekly candle closed the week out below the 7,000 level is a technical red flag.
The fundamentals also look quite bearish right now, as the Bank of England warn of economic stagnation as the UK economy approaches the Autumn months and PM Boris Johnson announces that National Insurance Tax is about to be increased.
Sentiment towards the UK100 is also raising a big reg flag right now, with retail traders usually bullish. According to the ActivTrader platform some 86 percent of traders are bullish towards the UK100.
This is a further increase since last week’s 80% reading, with retail traders still not believing the move. These type of sentiment skews rarely end, meaning a big, long price drop could be nearing.
UK100 Short-Term Technical Analysis
The four-hour time frame shows that the FTSE100 is still forming a complex inverted head and shoulders pattern, which holds a massive 500 points of upside potential if activated.
It would be hugely bearish if the pattern is invalidated as the FTSE100 could stage a big price drop towards the 6,500 area. Overall, watch closely if the pattern remains intact this week.
UK100 Medium-Term Technical Analysis
The daily time frame shows that the UK100 is trading inside a large rising price channel, which continues to expand over time, and indeed point higher.
It is also noteworthy that the FTSE100 could fall towards the bottom of the pattern if a major sell-off does take place this week. Lower and higher time frame analysis are both pointing towards the 6,500 level.