Bottom line: FTSE bearish structure still remains intact with prices staying below 7724 levels. A pullback could be expected before the drop could resume further.
Technical Analysis:
FTSE bears seem to be in control, dragging prices down by almost 450 points from close to 7700 levels as expected. FTSE has found interim support at the fibonacci 0.786 retracement of previous rally between 7138 and 7696 levels. A bullish bounce here could re-test 7700 handle before reversing lower again, while a break below 7139 would be encouraging for bears. Looking at the overall wave structure, FTSE seem to have produced a 5-3 pattern at a larger degree. The drop from 7904 highs to 6635 was in 5 waves, labelled as Wave (1). The subsequent rally was an A-B-C corrective wave that probably terminated around 7724 levels, labelled as Wave (2). Ideally, a 5-3 Elliott Wave pattern is followed by another 5 waves towards the major trend, which is down in this case. Therefore, another 5 wave drop can be expected as Wave (3), dragging prices below 6635 levels. FTSE might have already produced waves 1 and 2 at 7034 and 7696 respectively. If the above counts are correct, a 3rd of 3rd wave is underway and should push lower towards 6569 levels going forward. Alternately, possibility remains that the larger degree Wave (2) might still be incomplete at 7724. If lower degree wave C is unfolding as a diagonal, there could be yet another rally above 7696 levels before Wave (2) could finally terminate. Hence, it is recommended to take profits and exit short positions taken earlier from 7650 levels and remain flat. An aggressive trading strategy for short term could be on the long side, against 7100 and targeting above 7696; while a more safe strategy would be to remain flat and look to sell on pullback or rallies. Major trend still remains lower until 7724 is in place.
Prepared by
Harsh Japee, Technical Analyst.
FTSE Chart
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