The FTSE 100 has fallen significantly during the course of the trading session on Thursday to reach down towards the 1600 level. That was where we broke out previously, and the top of the ascending triangle that I have marked on the chart. The fact that we have come back to retest that area and hold is a very bullish sign, and it suggests that the FTSE 100 should continue to go much higher. At this point, we have formed a hammer that was followed by an even bigger hammer, and as a result there is a very nice bullish sign. On top of everything else, the 50 day EMA has held so that also looks very good.
Looking at the alternate scenario, we could in theory break down below the bottom of this candlestick, which I think would be an extraordinarily negative sign. At that point I would anticipate a move down to 6600 level, which also has the 200 day EMA approaching it rather quickly. If that happens, it could be a very negative sign in general, but I do not think it seems very likely after the massive move intraday.
A break above the 7000 level opens up the possibility of a move towards 7200, which has been a target of mine for a while. Furthermore, there is a gap above that has yet to be filled so you can also look at that as a potential target as well. Remember, stock markets continue to rally based upon liquidity more than anything else so there is no reason to get too cute here and trying to trade against what has been a huge uptrend in not only the FTSE, but the DAX, S&P 500, and NASDAQ.
If we can break above the 7200 level, then it is likely that we would go looking towards the 7500 level based upon a longer-term extension of the trend. This does not necessarily mean that we get there anytime soon, it would just be a longer-term target. At this point, I am looking for the opportunity to build a longer-term position, entering slowly and adding as we continue to see upward momentum as this looks like a huge move just waiting to happen. I have no interest in shorting, at least not until we break down below that 200 day EMA.
