In the short term I would be very cautious about my position size, but then would become aggressive if we can break out of this 400-point range.
The FTSE 100 initially pulled back on Tuesday but found enough support at the 50-day EMA to show signs of life again. When you look at this chart, you can see that we have been consolidating for a while, and it looks as if we are going to go looking towards the 7200 level above. The 7200 level is an area that has caused a bit of resistance recently, as we have been going back and forth for quite some time. In fact, you can say that we are essentially killing time in a consolidation area in order to determine whether or not we are going to rally going forward.
It is worth noting that the market has the 50-day EMA slicing right through the middle of this area, which is an indicator that a lot of people will be paying attention to. Underneath there, we have the 7000 level, an area that would attract a certain amount of attention, as it is a large, round, psychologically significant figure. That being said, the bottom of the absolute consolidation I believe is at the 6800 level, so that is an area that we need to pay special attention to as well. The 200-day EMA is sitting just above the 6800 level as well, so it is likely that we will see plenty of buyers down there.
The FTSE 100 has to deal with the fact that the Bank of England is suggesting that it is going to tighten sooner rather than later, which could work against the stock market, and there are a lot of concerns about inflation in that country as well. Because of this, it is very likely that stocks could struggle, but at the same time it looks like liquidity continues to be a major issue and as we have a bit of a “50-50” situation right now. I think there will be a bit of a wait until we get some type of breakout of this range, so in the short term I would be very cautious about my position size, but then would become aggressive if we can break out of this 400-point range. If and when that happens, we should have a nice longer-term set up.