Technical Analysis – UK100 stock index plummets; buyers resurface ahead of 7000 level

Anthony Charalambous, XM Investment Research Desk

UK stock index collapsed aggressively from the two-month high of 7,440 right through the simple moving averages (SMAs), erasing all gains that commenced on August 15.

The MACD has distanced itself in the negative region below its red trigger line, reflecting the negative sentiment in the market. Yet, the upward slope in the RSI, which has deepened into the oversold area, warns traders that the move down is probably looking for a bottom.

A significant move above the 7,050 level could rally the price back up to 7,180, which is the 61.8% Fibonacci retracement level of the up leg from 7,018 to 7,440. Climbing higher, the 50.0% Fibo of 7,230 could unfold ahead of the 200-period SMA currently at 7,260. Further up, the 38.2% Fibo of 7,280 could next play out.

On the other hand, if the bears revive the down move below 7,050, the 7,000 barrier could act as immediate support, a break of which could push the price towards the 6,910 level. Any further losses could turn the focus to the 6,850 support.

Although the short-term remains bearish, it seems to have run out of steam. A move back above 7,230 would shift the bias back to neutral, but below 7,000 would revive the negative outlook.