Is this a bullish rally or countertrend move?
City Index July 16, 2012 3:15 PM
<p>The recent bullish momentum in stock indices appears to have caught some traders off guard. Whilst we had seen a pullback in the last two […]</p>
The recent bullish momentum in stock indices appears to have caught some traders off guard. Whilst we had seen a pullback in the last two weeks Friday’s price action indicates that the markets may want to test the upside. Remaining flexible to trend changes is a critical skill for all traders to have and as volatility increases short term traders will need to ensure they remain open to price swings in both directions. Given that there was a strong close to the upside on Friday for the US markets the test will be to see a continuation higher or a failure which should determine if we are to retest the most recent highs. See key levels below:
FTSE 100 finds support at key level
If the FTSE 100 is to continue higher in a bullish mode it will need to hold onto the recent support level of 5595. So far the index has managed to rally from this level and was on its way to test he 5700 upside resistance target. This week it is important that the index gets above 5675 to reach for 5700 – 5727 which has so far seen the index push back lower. If the 5727 becomes an important high then the current move is likely to be a counter trend rally. A break above 5727 would indicate another swing high could be in the making to lift the market for the 5800 – 5850 area. Short term trend is bullish until proven otherwise.
Dow Jones creates a potential reversal
After a six day decline the US Dow Jones managed to trade sharply higher on Friday. With such a strong close the index could be in a short term bullish mode providing two factors are respected. Firstly the index needs to break above Fridays high. This must then be followed by a break above 12835. If both of these criteria are met then the opportunity to see 13060 could become favourable. One should remember that the current move up is still a retracement of the May decline. A real bullish case would require a break above the 13338 May high. Until then sudden surprises to the downside could still be on the cards.
Gold remains in a narrow range pattern
So far the price of Gold has been fluctuating between $1,607 and $1,547 which has created a tight trading range. It appears that we could soon see a sharp move which often occurs when markets enter a contraction phase. If history repeats itself with the case for Gold then traders should monitor these two levels to provide a hint for the next direction. The weekly trend, as indicated by the red bars suggests the commodity remains bearish and so far the metal has been unable to remain above $1,607 so this could be a bearish hint. We await to see if $1,507 is broken.
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.