Technical Analyst, Saxo Bank
Summary: FTSE 100 and 250 seems to be forming top and reversal patterns indicating short-term correction
Medium-term uptrends are intact and indicators suggest higher levels after a likely correction
FTSE 100 peeped just above its all-time high Friday. Opening below today and with divergence on RSI this could be the peak once again. If FTSE closes below 7,708 it could trigger a sell-off down to key support at round 7,451. Some support at around 7,600.
However, if FTSE manages to take out Fridays high at 7,907 the uptrend is set to be extended 8K.
Next few days likely to be key.
Weekly chart shows that there is no divergence on RSI which is and indication of higher levels on the medium-term.
FTSE 100 broke out of this sideways range between 6,700 and 7,660 and could have shifted the range upwards with potential to around 8,600 illustrated by the two vertical arrows, given that the Index can move back above 7,904.
However, the medium-term uptrend could exhaust around the 1.618 projection at around 8,117
If FTSE 100 closes below 7,661 the medium-term uptrend is likely to be reversed.
FTSE 250 has formed an Evening Doji like top and reversal pattern. Coupled with divergence on RSI a correction is in the cards. A correction that could test the lower rising trendline. A close below and FTSE 250 is likely to test key support at 19,574.
Should buyers manage to lift the Index to close above 20,615 i.e. last week’s peak there is no strong resistance until around 21,485. See weekly chart.
RSI divergence explained: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.