Buy FTSE100 on dip or breakout
Trade idea background
The FTSE100 has been in a fierce down trend since the index peaked on May 22 before finding support this past Thursday. Overall Thursday was a strong day for the markets, more or less without exception. Friday prices pulled back and appear to have been consolidating the reversal off the lows. This is supporting the notion of a global bounce in equities; at least for the short term.
It wasn't all that surprising to see a bounce from the 6,200 level since this level has acted as support in the past. The 6,200 level is key for the bullish prospects for this index on more or less every time frame and it would be surprising to see it break right away given that the technicals are stretched to the downside.
The consolidation in equities on Friday is setting up a nice opportunity to go long towards the outlined resistance levels shown in the charts below, either on further pullback or on a break above the highs in the current bounce.
The down trend outlined by the down sloping trend channel in the chart below has been broken; which also strengthens the case of a bottom in place.
Oscillators are depressed and in need of some relief before a possible resumption of the down trend. The 200-day moving average is indicating that we still are in a larger positive trend but the 50-day moving average has turned negative indicating that the medium term trend has turned negative.
Trade management and risk description
Once the trade is initiated and the 6,350 level is broken; move the stop higher to 6,290. Take profits at the target level.
If one buys a dip towards the 6,255 level one could take profits at or close to 6,350 and re-enter long if we break above.
The risk to this set up is that the market is even weaker than expected; which could force prices lower ahead of the outlined target.
Trade idea parameters
Entry: On pullback towards 6,255 or on break of 6,350
Stop: 6,190 on pullback or 6,290 on breakout trade
Time horizon: one week
Chart: FTSE100 Daily chart overview
Chart: FTSE100 Hourly chart buy the pullback
Chart: FTSE100 Hourly chart buy a breakout
Chart: FTSE100 Weekly development chart
Non-independent investment research
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