It was a bit of a surprise during the trading session on Tuesday to see the FTSE 100 fall so hard, as we have continued to test the 7000 level. Not breaking above it was the surprise, but the fact that we felt was hard as we did was a bit interesting. At this point, the market closed at the end of the day just above the 6900 level, so that is, in and of itself, something to hang onto if you are bullish. Furthermore, this is a market that is still in an uptrend so one has to look at it through that prism.
Nonetheless, the way we pulled back during the day was not encouraging for bulls, so this may take up more effort than thought. That being said, I do see quite a bit of support underneath, especially near the 6800 level which is the top of the previous ascending triangle, which measures for a move towards the 7200 level. If we can continue to see bullish pressure, that will be my target, although it is becoming increasingly obvious that we are going to continue to see a lot of noisy behavior, so I think you are going to be very cautious at this point. In fact, I would submit that it is very likely you are going to need to keep your position size very small.
Nonetheless, I see nothing on this chart that tells me that we need to be sellers, especially as beyond the 6800 level, we also have an uptrend line that is followed right along by the 50-day EMA. With that in mind, I think it is only a matter of time before buyers will return on some type of pullback. Alternately, if we do break above the 7000 handle on a daily close, I think that would be the signal that we are looking for in order to continue the move higher, and in the meantime, we are simply trying to build up the necessary inertia to make a longer-term bullish run continue. With that in mind, I have no interest in shorting anytime soon, but I do think that pullbacks will continue to attract inflows, especially if the British pound can remain somewhat historically cheap as it has been over the last couple of years. As the currency consolidates, that does not threaten the stock market.
