The FTSE 100 gapped lower to kick off Tuesday but found enough strength near the 50-day EMA to turn around and close at the very highs of the day. This has been a very strong move, but at this point, it is obvious that we do not have an uptrend to deal with, as we recently had pulled back quite significantly from the 7600 level. That being said, we still have a lot of noise just above that will come into the picture, so I think it is going to be difficult to break above there.
The 50-day EMA underneath is sitting at the 7447 handle, and it looks as if it is trying to rise from there. The 50-day EMA could offer a bit of dynamic support, so pay close attention to that. If we do break down below there, then I think the 7300 level underneath could be targeted next. The 200-day EMA is in that general vicinity, so it will be interesting to see how that plays out. Given enough time, this is a market that I think will have to come to terms with whether or not the bullish pressure can continue, but quite frankly we may have just formed a massive double top. On the other hand, if we were to break above the 7600 level, it could show this market going much higher, as it would be a “busted double top.”
Sometimes, when a pattern like this fails, that ends up being a much bigger signal. Ultimately, if we can break above there, then it is likely that we will enter more of a “buy-and-hold” type of situation. On the other hand, if we were to break down below the 7300 level underneath, and by extension the 200-day EMA, the market is likely to fall apart and perhaps reach down to the 7000 handle. The 7000 handle has a certain amount of psychology attached to it, and I think a lot of people will be paying close attention to it.
The only thing you can count on is volatility, and that is going to be true with all stock markets, so be cautious about your position sizing. However, we do have a couple of levels mentioned previously that we could pay close attention to, so wait for your signal to appear.
