The FTSE 100 fell initially to kick off the trading week on Monday, but then found buyers underneath near the 7000 handle, as the end result was a hammer. The hammer is a very bullish sign, and we have a bit of a gap above that will almost certainly come into the picture as well. With that being said, if we can continue to show strength, at the very least one would think that we would need to fill that gap.
If we can break above that gap, then the market is likely to go looking towards the 7200 level. The 7200 level is a large, round, psychologically significant figure, and will attract a certain amount of attention. With that being the case, I do think that the market will eventually try to go higher, perhaps sending this market towards the 7500 level as a result. Furthermore, it is worth noting that the “measured move” of the ascending triangle that we broke out of suggests that we could go to that 7200 level.
The 50-day EMA underneath has been reliable support, and you can see that we even ended up forming a hammer on Thursday at that level, so it does suggest that we are going to continue going higher. It is not until we break down below the 6800 level which is just below there that I think you could run into a bit of trouble. That would not only be a large, round, psychologically significant figure, but it would also be an area which people who used to look at it as resistance would now look at it as support. If we broke down below there, then it would probably be a very negative turn of events in general. At that point, I would anticipate that the market would go looking towards the black 200-day EMA on the chart, which currently sits at roughly 6560.
I think that most traders will be looking at short-term dips in order to pick up value, as this market has shown a lot of bullish activity over the last several months. I have no interest in shorting the FTSE 100, as we have seen so much liquidity coming out of central banks around the world that it is almost impossible to go against the overall trend.
