Last week’s price action provide clues to the next move
City Index July 9, 2012 3:00 PM
<p>The bearish view for last week has played out to indicate this week is likely to follow through to the downside. As both the FTSE […]</p>
The bearish view for last week has played out to indicate this week is likely to follow through to the downside. As both the FTSE 100 and Dow Jones reached respective resistance levels we have seen some evidence of weakness in the indices that could set the stage for a sharp decline ahead. Without becoming overly bearish, traders will need to pay attention to key factors. Namely this week we should watch for a break below last week’s lows and also see a negative close by the end of this week. If both of these aspects have been met then most likely we can consider a completed move to the upside for now. See key levels below:
FTSE 100 reverses at 5700 level
Quite often technical analysis can provide advance warnings of pending price action. We noted previously that a corrective pattern to the upside in the form of an ABC correction had been developing. Currently the FTSE 100 has seen the index reach 5700 followed by a break below 5660 and then a continuation lower last week. However from a momentum perspective, the daily charts are yet to turn negative and if we see further weakness this week then we could see the bears come back into full control. For the index to negate a bearish take it will require a move above 5727 to see a bullish continuation towards 5826.
Dow Jones provides a key reversal
An expectation of a market high for July 4th has seen the Dow Jones form a high on July 5th. What remains to be seen for this week is the index will need to break below 12700 followed by a momentum reversal. The weekly close saw the index make an intraday high followed by a weekly negative close. This shows that the index could be weaker than expected. It should be an interesting week ahead and especially towards the end of this week as a negative follow through may set the Dow Jones into a position to see a test of the 12035 low over the next few weeks. The index could even fall as low as 11525 if a sharp decline develop.
Gold provides a difficult trading week
For a brief moment it seemed as if Gold could see the path being paved for higher prices. The metal managed to break above $1,607 which could have led to a move towards $1,677 but instead fell back below $1,607 and close negative at $1,583 for the week. If Gold falls below $1,576 then we are probably expecting a move towards $1,547 and lower. Overall the commodity seems to be stuck in consolidation mode and the last eight weeks has seen no real progress either for the upside or downside breakout. Until we see a range breakout, traders may face further frustration this week.
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