The FTSE 100 has held onto recent strong gains and looks to head higher again this week despite last week’s bearish warning that the UK is headed towards a recession from the Bank of England.
Stocks have totally ignored this fact and are starting to take their cues from the US stock market, which has posted major gains over recent week, largely led by tech stocks inside the Nasdaq.
The UK100 is made of banks, mining, leisure, and pharmaceutical companies in general, and many have been benefitting by the weaker pound and also a rise in commodity prices.
Going forward, the looming energy crisis in the UK could weigh on the domestic economy, as will the British PM leadership race. But in the meantime, momentum is to the upside.
Liz Trust has recently started to gain a lead in the UK polls, this could help towards uncertainty. Liz Trust may also be seen as being better for the UK economy due to her economic policies.
Sentiment towards the UK100 is very interesting right now. According to the ActivTrader platform some 66 percent of traders are bearish towards the UK100.
This is typically very bullish when we see large amounts of one-way negative sentiment against the short-term and medium-term trend. The UK100 could continue to head higher, as the charts across the lower time frames certainly suggest.
UK100 Short-Term Technical Analysis
The four-hour time frame shows that the UK100 index is above its 200-period MA on the mentioned time frame. Additionally, a bullish cross has taken place, with the 50-period MA crossing the 200-period MA.
According to the four-hour time frame the RSI remains bullish, however, the MACD indicator has started to form bearish divergence. A reversal towards the 7,350-price zone is possible.
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.
If the pattern is invalidated, I expect that the FTSE100 could crash hard. In order for this to happen we really need to see a move under the 7,000-support area to get bears interested. In the interim, the 200-day MA, around the 7,300 level remains key.