Technical Analysis – UK 100 index’s correction from 8½-year low at risk

Anthony Charalambous, XM Investment Research Desk

UK 100 stock index (Cash) is losing steam within the Ichimoku cloud after reversing from the 6,230 level, that being the 50.0% Fibonacci retracement of the down leg from the 7,689 peak to the multi-year low of 4,778. Backing the last two-week deterioration in price is the fading red Tenkan-sen line and the falling stochastics.

Moreover, the RSI is picking up negative momentum by dipping below its neutral threshold, while the simple moving averages (SMAs) retain their bearish tone, which is predominant in the bigger picture.

If sellers extend losses, initial support could surface at the cloud’s lower band at the 5,627 low ahead of the 5,525 trough and the 23.6% Fibo of 5,464 underneath. Diving further, the index could challenge the 5,328 key border before attention shifts to lower levels.

Alternatively, if buyers re-emerge first resistance could come from the 38.2% Fibo of 5,888 ahead of the 6,013 high. Climbing out of the cloud should the tough 50.0% Fibo at 6,230 fail to halt the ascent, persisting bulls could fill the gap from March, shooting to the 6,456 inside swing low ahead of the 61.8% Fibo of 6,577 within the area of the 100-day SMA.

Overall, the very-short-term picture remains positive above 5,627 and only an upgrade above the 50.0% Fibo of 6,230 could reinstall confidence in the correction from the multi-year low.