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FTSE 100 Near An Important Resistance Level

ByThierry Laduguie
Published 21/01/2015, 08:06
UK100
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The market is rising on hopes the ECB will kick start a rally on Thursday. We could call this bullish sentiment because there is no other reason for the market to rise except for the stimulus that the ECB is about to announce. The International Monetary Fund reduced its growth forecasts for 2015 and 2016, this is bad news because it shows than QE has helped the stock market but not the economy. There is now speculation that central banks will resume QE. Really?

Back to the ECB announcement tomorrow. As I have said before when a bullish announcement is known to occur, market participants will buy in advance, and that is what is happening now, investors are pushing the market higher because they hope the stock market will rocket tomorrow. When the announcement comes and providing it is in line with expectations, the stock market should not rally further. The news will be priced in, in fact there is potential for a selloff if the size of the stimulus package is less than expected. The FTSE is now near an important resistance level below 6700.

The FTSE 100 pattern is a triangle. Today's rally near the previous high in pre-open is a clear indication that the FTSE is poised to move above 6652 after 8am. This level is important because if broken the rally will extend to 6700. However a move to that level would have bearish implication because this level marks the top of the third leg of the triangle.

On the daily chart the 200-day moving average is at 6669. Well, this 200-day moving average is like a magnet, for some reason the FTSE tends to rally above the moving average before starting a new leg down. This is another reason to expect a rally above 6669 today or tomorrow. Then we can expect a decline after the ECB announcement.

FTSE 100: 120 min chart

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