FTSE 100: Second Selling Wave Likely After End of Bear Market Rally - 1 May 2020

Ibeth Rivero

Financial markets embarked on a substantial recovery off of their March lows. A false sense of optimism and detachment from fundamental conditions resulted in a spike in demand by the retail sector. Trading volume remained low as equity markets around the world launched a bear market rally, referring to a robust short-term advance inside a long-term dominant downtrend. Confirming the existence of a bear market is light volume during advances with an increase during contractions, together with the magnitude of moves. The FTSE 100 completed a breakdown below its resistance zone and is well-positioned to maintain its trajectory on the back of institutional selling pressure and portfolio adjustments.

The Force Index, a next-generation technical indicator, was rejected by its horizontal resistance level, as marked by the green rectangle. Adding to bearish developments is the convergence of the ascending support level and the descending resistance level. The latter took control and is applying downside pressure on the Force Index, situated below the 0 center-line. This technical indicator is anticipated to collapse deeper into negative territory, leading the FTSE 100 into an accelerated sell-off.

Governments are pressured to lift lockdown measures, with many ignoring the necessity to address permanent changes to existing supply chains and social life in the absence of treatment. Germany provided a working example of the catastrophic result its rush to normal delivered. No significant economic activity and an increase in new Covid-19 infections. The risk of a second infection wave due to carelessness cannot be excluded, which assisted the breakdown in the FTSE 100 below its resistance zone located between 6,040.90 and 6,182.10, as marked by the red rectangle.

Meaningful economic changes are performed in a slow process, where the transition period is usually painful to businesses and consumers alike. Failure to implement the proper policies after the 2008 global financial crisis is now adding to the list of ignored issues, with the primary response to the virus being debt. The FTSE 100 is on track to enter a breakdown sequence below its ascending Fibonacci Retracement Fan sequence and into its short-term support zone located between 5,205.60 and 5,341.80, as identified by the grey rectangle. More downside cannot be ruled out with new 2020 lows a distinct possibility.

FTSE 100 Technical Trading Set-Up - Breakdown Extension Scenario

  • Short Entry @ 5,730.00

  • Take Profit @ 5,205.00

  • Stop Loss @ 5,825.00

  • Downside Potential: 52,500 pips

  • Upside Risk: 9,500 pips

  • Risk/Reward Ratio: 5.53

A triple breakout in the Force Index, placing it above its ascending support level, can pressure the FTSE 100 into a reversal. The upside potential remains limited to its resistance zone, a potential identifier to the end of the bear market rally. Financial markets are shifting their focus to the costs of nationwide lockdown, stimulus measures, and corporate bailouts on top of what is shaping up to be a devastating earnings season. Traders are advised to consider any advance from current levels as an outstanding selling opportunity.

FTSE 100 Technical Trading Set-Up - Limited Reversal Scenario

  • Long Entry @ 5,930.00

  • Take Profit @ 6,180.00

  • Stop Loss @ 5,825.00

  • Upside Potential: 25,000 pips

  • Downside Risk: 10,500 pips

  • Risk/Reward Ratio: 2.38

FTSE

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

Did you like what you read? Let us know what you think!

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

0 User comments

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

Read more
Add new comment
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.