It was only Wednesday that I posted the FTSE as chart of the day but due to the importance of the current price action I thought it best to go again. I stated that we would only dip our toe to the upside if we closed above Tuesdays high at 5840. Well we closed bang on this price keeping us safe. Thursday saw a heavy sell off with a large bodied red candle that we have placed a Marabuzo line on that comes in at 5800. This also gave us a close back below the 38.2 Fibonacci Retracement level of the move down from January that comes in at 5777. Today has seen us gap lower and test the major level at 5640 breaching this by half a tick before staging some sort of recovery. These are key times for the FTSE with longer term implications from the outcome.
Indicators in Play
Gaps occur when the market opens cleanly above or below the previous days range. In a Bear situation the previous days low becomes a strong resistance point where sellers will be waiting in the wings. A strong reversal through a gap can create a flurry of stop activity though.
A Marabuzo line is drawn at the 50% mark between the open and the close on a large range day. These two points should be at or close to the extremes leaving little or no wick. When we have a red candle where we opened high and closed low, the Marabuzo acts as strong resistance.
Summary
The value trade is with the Bears now with gap resistance at 5730 pinning us back. A close below 5654 would see us target 5300 so these are key times. The Bulls would need to take out three key levels before we could say the danger is over. The gap at 5730, the Fibonacci level at 5777 and the Marabuzo line at 5800. This is a big ask. We are happy to be short with a scaled reduction if these levels were re taken.
David has been
analyzing and trading the worlds financial markets for the past 25 years. After an initial grounding with Mercury Asset Management and Warburg Securities he went on to set up his own brokerage operation in London. Since then he has appeared regularly on Bloomberg Television and been involved in providing analytics on behalf of some of the worlds major exchanges. He is also a member of the Society of Technical Analysts.
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