The FTSE 100 initially fell on Friday but found enough support at the 50-day EMA to turn things around and show signs of life. By forming the hammer that we have, the market is likely to continue to see bullish pressure, perhaps trying to fill the gap that sits just above. This is a market that is trying to sustain its overall uptrend, and if we can break above the 7100 level again, and most certainly will. However, there are some negative signs above that could cause some issues.
The first thing that I see causing major issues is the fact that the 7190 level has offered resistance a couple of times, forming a potential “double top.” While that does not necessarily mean that we have to break down, it is most certainly something that we need to be paying close attention to, because if we cannot get back above the 7190 level, that could be the beginning of something rather ugly. That being said, the last couple of candlesticks certainly do look as if there is a certain amount of buying pressure underneath.
I believe that the market continues to be a “buy on the dips” type of situation, especially as the British pound has lost some strength. That bodes well for the whole “cheaper exports” theory, which of course could propel the FTSE 100 higher. That being said, there is also the argument that the British pound losing strength against safety currencies does suggest that there are a lot of concerns out there when it comes to the global recovery, and if that is going to be the case, we will see indices around the world selloff, not just the FTSE 100.
The market continues to move back and forth in the same general vicinity and has recognized the 50-day EMA as important. Until proven otherwise, I would have to assume that that relationship will continue, with perhaps the possibility of a simple grind sideways as we are in the month of August, which is notorious for being very choppy and sideways. However, if and when we get some type of significant and impulsive candlestick, we might get a bit more clarity from the longer-term perspective. Until then, sideways with a slightly upward bias is how I look at this market, although one has to remain fairly nimble.
