Daily FTSE Technical Update |
By, James A. Hyerczyk
When the FTSE opened, all eyes were probably on a pair of potential support levels at 5353.55 and 5287.86. Tuesday’s weak close put the market in a position to test these two levels early, but it was going to be up to follow-through momentum to actually fuel a break down to these levels.
Short-term oversold conditions probably led to the choppy two-sided trade early in the session, but that eventually gave way to a series of lower-highs and lower-lows which eventually drove the market to the low of the day at 5366.80. Based on the short-term range of 5075.20 to 5631.90, bearish traders were most likely trying to drive the index into 50% of this range at 5353.55. A failure to hold this level would have meant further downside action.
The premature bottom indicates that selling pressure dried up, giving short traders an excuse to cover their positions while the crowd was waiting inside of the retracement zone. Combined with the oversold conditions, the technical bounce from this area suggests that a short-covering rally is imminent. Traders shouldn’t be fooled by a near-term rally, however, since the main trend is down and bearish traders will likely be waiting to refresh their short positions at higher levels.
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