The FTSE 100 is breaking out of a trading range, a new high is expected above 6905. Sentiment is positive, in this situation people will interpret the news in a positive manner. They will also be more optimistic about future events such as Greece's talks with its EU partners.
Markets are rallying because investors expect a positive outcome on Friday. Greece has been given until the end of the week to request an extension or lose financial assistance. If Greece loses financial assistance the country could rapidly run out of cash.
Given the reaction of investors with the stock market rallying to new highs, investors are betting on a positive outcome. Crude oil is rallying too, this will help the oil and mining stocks. Despite the positive sentiment this is not the best time to go long because the timing indicators, Top 20 Differential, is approaching overbought and the 34-day BTI is overbought. This is telling us that the FTSE is near a top, sometime next week the FTSE will be trading lower.
Right now and because of the breakout the rally should extend. So before the next move down start I expect the rally to continue for a few days. As I write the FTSE is trading at 6905 in pre-open, that level was the high in September last year. The fact that the index has rallied to that level is a clear indication that the index wants to go higher. I don't believe in double tops.