Ross Woodfield
Blackwell Global Investments Limited
The Bank of England holding interest rates at 0.5% and the European Central Bank lowering theirs has helped the FTSE100 index break through resistance. But a fairly ominous looking rejection and double top could point to a wave back down.
One of the most obvious features of the FTSE100 daily chart over the last 15 months is the wave pattern that has seen momentum swing between bullish and bearish in long and reasonably predictable waves, all the while respecting the resistance at 6879.0 and the bullish trend line. So it is a little surprising to see the FTSE break out of the resistance and hit a 14 year high. But then again, given the circumstances, maybe it’s not so surprising.
The ECB surprised the market by reducing interest rates by a further 10 basis points and implementing a programme of buying asset backed securities from the private sector. Secondly we saw the Bank of England once again keep interest rates on hold at their historic low of 0.50%. Both of these monetary policy decisions provide a boost for equities as they make the yields on stocks relatively more attractive.
Looking at the daily we can see an ominous looking rejection sending the price back below the resistance. On the shorter timeframe (hourly) chart we can see a fairly interesting looking double top pattern forming. This neckline is slanted and correlate with previous levels of resistance. The price has moved back below the neck line and may look to use this as resistance before a final rejection off and a movement lower.
The Stochastic oscillator is certainly looking bearish on the H1 chart. In fact we can see a bit of divergence where the tops of the double top are concerned. The price has posted a higher high on the second top, however the Stoch has not. This is a bearish indicator and it will be interesting to see how the FTSE behaves today, particularly with US Nonfarm Payroll data due out later.
The FTSE has broken a 14 year high on the monetary policy decisions of the Bank of England and the European Central Bank. A double top could point to a short lived high and a reversal of the current trend.
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