This is a market that clearly has changed its attitude, so if we do recover, it is going to be very slow.
The FTSE 100 crashed on Friday as traders ran for cover due to the coronavirus variant news coming out of South Africa. There are concerns about further lockdowns, and this had people selling anything that they had a profit in. This was in order to cover a lot of negative positions, so it is a scenario in which we may see this market turn around, but we need to see a turnaround in risk appetite, and perhaps good news about the virus.
As you can see, the 200-day EMA sits just below, and it is likely to offer significant support, so it does maken sense that we will bounce from here. Furthermore, we are sitting right at the 7000 handle, which is an area that a lot of people would pay attention to as well. After all, it is a psychologically and structurally important level. That being said, the candlestick is extraordinarily negative, and candlesticks like this typically do have a little bit of a follow-through. That being said, if we were to turn around and recover during the day after selling off, then it might be the “bottom of the pullback.” In a sense, you need to be looking for capitulation to get involved.
A lot of what will determine where we go next is whatever the next headline coming out of South Africa is going to be. With that being the case, I think it is difficult to put a lot of money into this market right away, but we are in an uptrend still so I would put a small position on when I did get long, but only build up as it moved in my favor. The 7200 level above is a target that a lot of people have paid attention to in the past, so now I think it becomes the “ceiling” unless we continue the breakdown. If we break down below the 200-day EMA and close below there, then it is likely that we will go looking towards the 6800 level. That being said, this is a market that clearly has changed its attitude, so if we do recover, it is going to be very slow.