The FTSE 100 gapped higher on Monday, but pulled back a bit to reach towards the 7050 level, only to turn around and show signs of strength again as we closed near the 7150 handle. Because of this, and the fact that we ended up forming a bit of a hammer, it does suggest that we probably have further upside. After all, the Friday candlestick was more or less a panic situation than anything else, and we have had the weekend to discern information coming out of South Africa.
The new version of the virus is hardly revolutionary, nor will it be extraordinarily deadly. Because of this, a lot of the selling pressure on Friday will probably be thought of as an overreaction by algorithms, but nonetheless I do think that it is more likely than not going to be a scenario where we would see a massive meltdown, and I like the idea of buying dips, assuming we even get them. If we can break above the 7200 level, then that would more likely than not send this market much higher. At that point, the market would probably go looking towards the 7300 level, which is a large, round, psychologically significant figure, but it is probably more important than the gap there has yet to be filled. If we can break above there, then obviously that would have the market going much higher.
Even though I think the market is likely to see more upward pressure, it is probably going to be very noisy upward pressure. With that in mind, you need to keep in the back of your head that pullbacks should be thought of as buying opportunities, unless of course we see a huge “risk off move” around the world, which obviously would have all indices selling off of the same time. I think what we see here is a nice opportunity to pick up value in a market that had been damaged quite significantly, and the fact that the buyers were able to prevail during the day is probably the most important thing to pay attention to. It is also worth noting that the 200-day EMA offered a bit of support as well, right along with the 7000 handle area.
