The FTSE 100 cash index opened with a negative gap on Monday following Sunday tweets by US President Trump that he is considering to increase tariffs on China. Although the actual index stayed closed today due to a bank holiday in the UK, still, the cash index opened, with its price sliding below the medium-term upside support line drawn from the low of December 27th. This, combined with the fact that it is also trading below a short-term downside line drawn from the peak of April 23rd, paints a negative near-term picture, in our view.
The tumble was stopped near the 7375 area, which if breaks, may allow further declines, perhaps towards the 7225 zone, defined by the inside swing highs of March 26th and 27th. Now, if that zone fails to stop the slide, its break may allow the tumble to continue towards our next support area, at around 7160. That territory prevented the rate from closing lower between March 25th and 27th.
Taking a look at our short-term oscillators, we see that the RSI slid, hit support near its 30 line and then, it ticked up. The MACD lies below both its zero and trigger lines. While both indicators detect negative momentum, the fact that the RSI ticked up after hitting 30 make us cautious of a corrective bounce before the next negative leg, perhaps for the index to challenge the 7315 or 7340 barriers.
That said, as long as such a recovery remains limited below the aforementioned upside line, we would still consider the near-term outlook to be negative, and we would still see a decent chance for the bears to jump back into the action. We would like to see a clear recovery above Friday’s peak of 7420 before we start examining whether the bulls have gained back control. Such a move could initially aim for the 7460 hurdle, the break of which may set the stage for extensions towards the peaks of April 23rd and 24th, at around 7525.
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