The FTSE 100 rallied significantly on Wednesday to break above the highs from the Tuesday candlestick. However, the 50-day EMA sits just below the 7200 level, which in and of itself would cause a little bit of noise. By pulling back the way we have, it suggests that the market is likely to continue seeing a lot of noisy trading, as during the previous session we had bounced from the 200-day EMA.
Quite often, I have noticed that markets will get trapped between the 50 day EMA and the 200 day EMA, which is where we are currently trading. That being said, the market is likely to see a lot of noisy behavior and difficulty in this area, so I think the most profitable traders in the short term will be short-term range-bound traders. That being said, the fact that we have such a well-defined area makes this trade easy to do, but if and when we break out of this range, then I will simply follow.
If we were to break down below the bottom of the 200 day EMA, and I think it makes a lot of sense that we would go looking towards the previous support level at the 6800 level, an area that has been important more than once. On the other hand, if we were to take out the 7200 level, then it is likely that we would go looking towards the 7400 level. The market continues to hear a lot of noise, so I think you have to be very cautious about your position size. However, if you find that the market breaks out in your favor, then it is time to start adding.
When you look at this chart, we are still very much in an uptrend, so it is likely that we will continue to favor the upside in general. That being said though, the candlestick for the session on Wednesday was not exactly inspiring for the buyers, so I think at the very least we will probably have a lot of noisy behavior. Ultimately, a lot of this will come down to risk appetite as well, as the FTSE 100 is a very important and volatile index for that part of the world.
