FTSE down for fourth day, testing key support
City Index June 9, 2015 4:38 PM
<p>European stocks are once again heading lower as investor concerns grow about the prospects of Greece actually leaving the Eurozone. Though such an outcome in […]</p>
European stocks are once again heading lower as investor concerns grow about the prospects of Greece actually leaving the Eurozone. Though such an outcome in our view is still unlikely, the probability of it becoming a reality is increasing as each day goes by without a deal being agreed upon. Evidently, investors are adjusting their risk exposures accordingly by reducing their equity holdings. Also unnerving the stock market bulls is the economic slowdown in China, with some being disappointed that the PBoC has not been more aggressive in loosening its policy. However, judging by the reaction of the Chinese stock markets recently, traders are now fully expecting the central bank to make a bold move. After all, the consumer price index in China grew last month at its slowest pace since January. The 1.2% year-over-year reading has not only missed the expectations, it is also well below the government’s 3% target. Thus a potential PBoC rate cut could offer at least some short term relief for the global stock market sell-off.
The FTSE is moving lower more reluctantly compared to its mainland European peers, but it is being dragged into the mix nonetheless. It has broken several support levels since taking out the bullish trend line at the start of this month and also breaking decisively below that key 6900 handle on Thursday. Going forward, this level may turn into resistance, though a clear break above it should be seen as a positive outcome. The UK index is now approaching some technically-important levels, though given the growing selling pressure it remains to be seen whether these levels will hold as support or not; indeed, some bearish speculators may well be looking at the potential breakdown of such levels as an opportunity to add to their positions.
As can be seen on the chart, the 200-day moving average is now in sight at just below 6750. In the past couple of occasions when the FTSE tested this moving average, a sharp rally followed. Will we see a similar reaction this time around? Time will tell. Below the 200-day SMA, we have two Fibonacci levels at 6735 and then at just shy of 6725; these levels correspond with the 127.2% extension of the most recent up move (from point B to C) and the 38.2% retracement of the last major upswing from the October 2014 low (i.e. from point X to A). Given the Fibonacci levels’ close proximity to the 200-day SMA, it could be more accurately stated that the FTSE is testing a key support area between 6725 and 6750. Thus, purely from a technical point of view, a bounce here appears likely. However, if this support area fails to hold then a continuation towards the other Fibonacci levels could get underway later in the week – the most important of these being the 61.8% retracement of the rally from October, around 6475.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.