In our last article about the FTSE 100, we said the first important resistance was at 6.800 and that we expected the index to reach it before the new year. The movement was delayed a little, and it has touched and surpassed the level in the first days of 2021. On January 7, the price reached its top for these last weeks at 6.903. What is going to happen now?
It is really difficult to tell. From August 2016 to February 2020, the price was in a sideways movement that broke during the COVID-19 crash last February. By surpassing 6.800, it seems the price wants to go back to the sideways band; and if that is true, we would be in the lower part. So buying could be a good decision, but it is still too soon to tell. If you ask me, I would wait until we have a couple of weekly closes above 6.800.
If that happens, we could try a trade with a stop loss at 6.800 and an objective of 7.350 in case the profit–potential loss relationship is still interesting. I insist that buying it now seems hurried.
Actually, the MACD line is about to give a sell signal in daily charts, so it gives the impression that buying now could be the thing to do just to see how the price will go down and touch the stop loss. Also, in the weekly chart, the RSI has reached the range of 65 to 70 that meant temporal correction back in April 2019, July 2019, and January 2020.
Our forecast
In this context, we think the price could get close to 6.550, and there we could have a buying option. Although we do not expect it to happen, another possibility is the price to close two weeks above 6.800 which would show strength.
As you can see, most of the time the best you can do in the market is just wait. It is a difficult lesson to learn, but it can save you a lot of money in broker commission and hurried trades.
This analysis does not have advising intent and could be very wrong and is here only for entertainment purposes. If you need help with your investments, ask your financial advisor.
Read more about the FTSE 100 in our other posts.