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Technical Analysis – UK 100 index bulls get a wake-up call; positive but overbought



The UK 100 stock index (cash) flew above the 200-day simple moving average (SMA) for the first time since February and closer to June’s high of 6,513, recording its second notable weekly gain and its biggest monthly increase in several years.

The market is in overbought territory according to the RSI and the Stochastics, though the indicators have yet to set a downward shift, hinting that there is still some bullish steam in store.

If that is the case, the rally could stretch towards June’s peak of 6,513 and the 61.8% Fibonacci retracement of the 7,688 – 4,777 downleg at 6,576. Breaching that border, the bulls may take a rest near the swing high of 6,889 before meeting the key 7,000 former restrictive region.

On the downside, the 50% Fibonacci of 6,233 could provide immediate support if the price drifts southwards, while slightly lower the 200-day SMA should add strong footing to keep sentiment positive. If sellers persist, the 20- and 50-day SMAs may next come to the rescue around the 38.2% Fibonacci of 5,889, deterring the price from reaching October’s bottom of 5,486.

Looking at the six-month picture, the index maintains a neutral structure within the 4,777 – 6,513 zone. Hence, any violation at these boundaries would switch the medium-term outlook accordingly.

In brief, the UK 100 stock index is viewed as strongly bullish in the short-term window, with the potential of a downside correction increasing as the market hovers within overbought waters.

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