The FTSE remains in no man’s land

On Wednesday, I put the FTSE in no man’s land. Since then it has tried to advance out of it, but on Friday it was beaten into a retreat by superior forces.

Just to quickly refresh your memory, this was the chart last Wednesday:

FTSE 100 spread betting chart

I called this region no man’s land because it lies between the resistance of the long-term tramline and the support of the shorter-term tramline.

And breaking out of this zone would be a significant event.

So this morning, I want to assess the current position, because a correct reading will help swing traders determine their next trade.

The tell-tale sign of a changing trend

Here is the updated chart:

FTSE 100 spread betting chart

Lo and behold, the rally, which was underway on Wednesday, extended further into Friday and planted a kiss (with slight pigtail) on my wedge line. Isn’t that pretty?

That kiss beautifully illustrates the principle that when a tramline or a wedge line has been broken, that event transforms it into its opposite. The wedge line had been a line of support for many months until the clear break on 1 August. That break transformed it into a line of resistance.

Now, instead of going long on the wedge line prior to the break, the correct trade is to go short. The trend has changed – and the kiss is the tell-tale signal.

The kiss is actually one of my favourite trade setups. It offers a low risk opportunity to enter in the new direction of travel.

Now, any short trades taken at the kiss can be protected by a close stop. Even if the market does resume its rally, only a small loss will be taken. Remember, there are no 100% sure things in trading, despite our best efforts at analysing the market.


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Did the market reach a Fibonacci level?

I also had the hourly chart last Wednesday where I forecast an extension of the rally in an A-B-C pattern. This is where, ideally, the C wave would terminate at a Fibonacci level.

This was the chart:

FTSE 100 spread betting chart

Did I get my three up, and did the market reach a Fibonacci level?

FTSE 100 spread betting chart

Yes indeed. I have three up and the C wave ended at the Fibonacci 2/3 (67%) level. Remember, the ratio 2/3 is also a Fibonacci level despite its absence on the trading tool provided by many platforms.

You should always keep in mind that 1/3 and 2/3 are legitimate Fibonacci levels and reversals can occur at either, although reversals from the 1/3 level are quite rare.

Interestingly, over in the Dow the rally carried to the Fibonacci 62% level.

Will the FTSE break out of no-man’s land?

Now let’s zoom in and take a closer look at the relief rally on the hourly:

FTSE 100 spread betting chart

I have excellent tramlines with a PPP (prior pivot point) on the upper line, which has that large overshoot. Remember, an overshoot usually heralds a sharp move in the opposite direction, which did occur right on cue. It was the steepest setback of the entire rally.

Also note that the sharp decline on Friday out of the overshoot was reversed exactly on the lower line – a significant verification of that line as a valid line of support.

That means that a break of that lower line would now be a significant – and another tradable – event.

• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading
Advanced tramline trading
An introduction to Elliott wave theory
Advanced trading with Elliott waves
Trading with Fibonacci levels
Trading with 'momentum'
Putting it all together

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One Response

  1. 19/08/2014, Bronco Bill wrote

    John, like the Dow and S&P the FTSE long-term monthly chart does not look healthy from here onwards.
    The ol’ favourite RSI (14) momentum indicator shows that momentum has been falling away since the highs made in 1999 and 2007, especially a big weakening since 2007 to where the FTSE is today.
    Every little rally on the monthly and weekly charts is getting weaker as shown by the RSI, therefor I am more comfortable when making short trades on a daily basis.
    A strong support line can be drawn under the four lows since 2009 and the FTSE now sits approx only 250 points above.

    Will we see it broken this year John…. you dont know…. no, I dont either.

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