FTSE trades within tight range as Ukraine at a crossroads

It’s been an ‘in-between’ session for the FTSE 100.

The UK’s benchmark stock index has traded within a moderate range of about 40 points today (Thursday) between 6694 and 6658, spending the latter part of the session mostly in the black by 0.4%.

In terms of moves in the UK stock market’s main index, this might well be amongst the quietest days of a fortnight that has brought sharp drops and rebounds in keeping with the rapidly developing and at times volatile geopolitical picture, with rapt attention particularly on Gaza and Ukraine.

European stocks eventually recovered from weak performances stoked by a worrying contraction of economic growth in Germany and disappointing growth in France. Markets in the bloc turned positive after Russian President Vladimir Putin made comments seen as conciliatory.

Putin said Russia would stand up for itself but not at the cost of confrontation with the outside world. He also said Russia would do everything in its power to end the conflict in Ukraine as soon as possible.

His words appeared to have had a similar effect on the FTSE, enabling the UK market to hold on to its mild gains into the close.

Even so, President Putin has proven to be subtle and variable throughout the conflict with Ukraine, switching his rhetoric between tones ranging from protectionist nationalistic at some times, followed at others by conciliatory and measured. All the while, the status of Russia as a material player in the Crimea and greater Ukraine has been murky and difficult to ascertain absolutely.

The picture remains a latently volatile one, capable of having a similar effect on world markets, including the FTSE 100, if more pronounced fighting were to flare up again.

And that’s just accounting for one geopolitical hotspot. The situation in Gaza has obviously calmed from its deadliest days under a week ago but cannot be said to have returned to normal.

Against this backdrop, the FTSE 100’s chart suggests the index is approaching a pivotal juncture.

Trade over the next few sessions, most likely next week, ought to provide a clear indication of the broad direction of the market into the autumn.

Broadly speaking, the index remains in the general downtrend begun in mid-May from 6894, though it last week rebounded at 6528, marking the end of a recent down-leg. In fact the latter level can be taken as the base of the right-hand side shoulder of an imperfect head-and-shoulders pattern (potentially bullish) if we take 6507, touched on 14th April, as base of the ascending shoulder.

More importantly, and zooming back out again, current levels of the FTSE 100 [it closed today at 6685.26] put it within throwing distance of major simple moving averages, the 20, 50 and 100-day moving averages (MA). The nearest is 50-day MA, currently at 6714.20.

Ideally, if the indicators were to provide an upside signal, the MAs would arrange themselves in an orderly fashion with the shortest time frame, 20-day MA trading above the others and the 50-day MA in the middle. And the index itself would need to break above each line.

Failure in the medium term would suggest a fall back to near term support, possibly near 6653. A severe fall from that could even call for a retest of the important 38.2% retracement of an uptrend commenced from 6019.85 on 17th June 2013.

Bear in mind the Moving Average Convergence Divergence (MACD) signal is not particularly emphatic.