This is a situation in which we will favor the idea of buying dips, as they offer value in what is obviously a very bullish run.
The FTSE 100 rallied again on Wednesday to reach towards the 7460 handle, an area that is at the top of the major channel that I have drawn on this chart. Whether or not we can continue to go higher is a completely open question, but considering that we are a bit overdone at this point in time, I am going to err on the side of caution, looking for some type of pullback over the next couple of days.
The 7400 level should offer a little bit of support, but there is also a gap underneath there that comes into play as well, so I would keep a close eye on that. After that, then we have the 50 day EMA that should offer plenty of support. Yes, technically we could go all the way down to the 200 day EMA just above the 7000 level and still be in the channel, but I am not looking for some type of massive pullback like that. It should be noted that we are breaking out of a major “W pattern”, but we may be running out of momentum in the short term due to the fact that we got so far in such a short amount of time.
Stock markets in general were relatively quiet during the day, and the FTSE 100 is a little bit of an outlier in that sense. US indices in general were very quiet, perhaps waiting for the jobs number on that side of the Atlantic on Friday, but regardless, there is a certain amount of risk appetite that tends to be put on this time year anyway, so I do believe that this is a situation in which we will favor the idea of buying dips, as they offer value in what is obviously a very bullish run.
If we were to somehow turn around and collapse to break down below the 7000 level, I might be concerned about the overall uptrend, but we will see moves in the other indices across the world that would also give us a bit of a “heads up” as to this potentially happening. I think it is much more likely that we will break the top of the channel than the bottom, and if we do, then it opens up the possibility of a move towards the 7600 level.
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