The FTSE 100 rallied a bit during the course of the trading session on Friday to reach towards the all-important 7000 level, but pulled back to show signs of exhaustion. That being said, the market is likely to continue to see buyers underneath, so I like the idea of getting involved on the dips. After all, we have recently broken above the top of an ascending triangle, pulled back to reach underneath, and then offered an opportunity for buyers to get involved again.
I think that the market will eventually break above the 7000 handle but may need to pull back just a little bit in order to build up the necessary momentum. By breaking out, that would open up the possibility of going to the 7250 handle, and possibly even higher than that. On the other hand, if we were to turn around and break down below the 6800 level, that could be a very negative sign. Breaking down below there almost certainly opens up the FTSE 100 to reach down towards the 50-day EMA underneath, which is close to the 6700 level.
Breaking that level would be extraordinarily negative and could throw this thing into a bit of a bear market. That does not look very likely though, especially as stock markets around the world continue to be supported by massive liquidity measures. The United Kingdom is a special situation as we have seen a lot of vaccinations in the UK, so it is possible that we would see traders getting involved in the FTSE 100 just based upon the idea that the UK will open much quicker than a lot of other economies. However, there is a certain amount of noise out there due to the fact that some in the UK government are wondering whether or not there are going to be more lockdowns. I do not think that is the case, but at this point in time the market seems to be ignoring that.
Regardless, this is a market that has been bullish for some time and I have no interest in trying to short it, because there is far too much bullish pressure to fight and that is a great way to lose money. Stocks are to be bought and not shorted, especially at the index level.