The Moment Of Truth Looms For The FTSE

08/15/06 08:32:58 AM

by Arthur Hill

The FTSE is holding its uptrend, but the August pullback carried it back to key support, and a big test looms.

Security: FTSE
Position: Hold

The current pattern on the price chart looks like a rising wedge, and these are typical for corrective advances that form lower highs. The current high is below the May high and a break below the lower wedge trendline would signal a continuation lower. The index pierced this trendline last week, but managed to recover and close above.

In addition to the wedge, the stochastic momentum index formed a negative divergence over the last six weeks (Figure 1). The stochastic momentum index shows that upside momentum is waning as a lower high formed in the indicator. The FTSE formed a higher high at the time, and this is a negative divergence. This is an early signal that needs to be confirmed with a support break.

FIGURE 1: FTSE. There's a current pattern on the price chart that looks like a rising wedge, and the stochastic momentum index formed a negative divergence over the last six weeks.

Graphic provided by: MetaStock.

The FTSE 100 has lots of support around 5750, and this level holds the key to the current advance. The 50-day moving average and 200-day moving average converge just above 5750 to mark support. The 50-day is holding above the 200-day average, and this is enough to keep the uptrend in place. A move below 5750 would reverse the current uptrend by breaking the moving averages and the June trendline. Such a break would also weigh on the 50-day moving average and a break below the 200-day moving average would be further bearish.

It ain't broken until it's broken. As long as these moving averages and the trendline hold, the trend since late June is clearly up. This trend should be considered up until proven otherwise, and 5750 is the level to watch.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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The Moment Of Truth Looms For The FTSE

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