Indices Market Analysis – FTSE 100

*My SHORT BIAS analysis on the FTSE 100 Index*

Following on from my first week of trading in the FTMO $100k trading challenge, I am dedicating this blog post to one of the trades that makes up the percentage gain on account. I will talk you through my analysis of the FTSE 100 index and why I now have 2 short positions running on it. As always, I like to do my analysis from top down and always like to be on side with the higher timeframes if possible. Let’s start with the weekly timeframe chart.

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FTSE 100 Index weekly timeframe chart

I only glanced at the weekly timeframe chart because it is fairly simple to see the current trend is bearish. After price bounced from the 7800 resistance zone last year it went on to make new weekly lows at around 6600 before price pulled back to the 2019 yearly highs seen recently. I have marked this current bearish trend on the chart where price has now made a lower high and I am looking for new weekly lower lows to be made over the next few months.

The daily timeframe chart shown below shows this recent weekly lower high in more detail with a more accurate price action.

FTSE 100 Index daily timeframe chart

On the daily timeframe chart I waited for the bullish trendline to be broken with a lower low made before I began looking for short entries. These 2 confluences then give a greater chance of the daily bullish trend reversal being confirmed and a pullback and lower high would be the next best entry for going short on this index.

I applied the Fibonacci retracement tool to the most recent swing high and swing low to find the next potential resistance zones at the 0.618 / 0.786 levels. As it happened, price was rejecting the 0.618 level which was around 7380.00 and I then dropped to the 4hr timeframe to find a more accurate entry for short positions.

FTSE 100 Index 4 hour timeframe chart
Position 1 entry

The multiple rejections of the Fib 0.618 retracement level are more clear on this lower timeframe. You can see 3 clear bounces from the zone marked in yellow. I entered my first FTSE 100 short position on the 3rd rejection of the zone with a stop loss order placed conservatively above the wick tests.

Below is a list of the reasons for my bearish bias:

  • Weekly timeframe chart showing lower lows and lower highs.
  • Daily bullish trendline broken.
  • Daily timeframe chart showing lower lows and lower highs.
  • Multiple rejections of the daily Fibonacci 0.618 retracement level.

Scale In Short Position 2:

FTSE 100 Index 4 hour timeframe chart
(Scale In Position 2)

After my first FTSE 100 short position was executed, price broke to the downside and broke the 4hr bullish counter trend line (CTL) which you can see marked on the chart above. A new 4hr lower low was made which confirmed the bearish trend bias was now apparent on all timeframes from 4hr up to the weekly. I was now looking to sell on the next pullback to further capitalise on the downtrend.

I once again applied the Fibonacci retracement tool to the 4hr swing high and swing low and shorted on the next rejection of the Fib 0.618 level and the 4hr 50ema which acted as a nice dynamic resistance to price. Both active short positions can be seen on the chart below.

FTSE 100 Index 4 hour timeframe chart
(Active short positions)

Profit Targets:

In the near term I am targeting the 7000.00 price level. It is a nice psychological number and it roughly coincides with the daily fibonacci -0.27 trend extension level. So if the daily trend is indeed bearish then the new lower low should form around this zone.

The weekly chart is also bearish so there is potential too hold these short positions for longer and aim for a new weekly lower low to be formed with the same principle. By using the fibonacci tool again then the first extension should form around the 6200.00 price level. This would be fantastic but would involve holding the positions for quite sometime.

Fundamental Analysis:

The FTSE 100 index has been propped up for some time by a very weak Pound. This is because of the inverse correlation between the value of the GBP £ and the value of the FTSE 100 index. I talk about these correlations in more detail in a previous post which you can find by clicking the link below.

In real terms, the value of the Pound could be due a small rally soon and this could help push the FTSE lower. This would help my short positions but with Brexit still lingering and political uncertainty in the UK, I would not put to much faith in this happening any time soon.

So there we have it, this is how I will be trading the FTSE 100 index over the next few days, weeks and potentially months. I hope you get some benefit from it 🙂

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