UK 100 – Running Out of Steam Again?

As the UK100 (FTSE 100) approaches the record highs that were hit back in the middle of January, there are signs that the rally is starting to run out of steam which may suggest that the gains – which have been largely built on the pounds weakness and commodity rally – may have reached a near term peak.

The rally itself over the course of the last few weeks has been very gradual in nature – as has been the case in equity markets elsewhere – but as we once again move above 7,300, the momentum indicators at the bottom of the chart are throwing up red flags.

UK100 Daily

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This isn’t quite as clear on the daily chart, although there has been a clear drop in the moving averages on the MACD despite the index trading only just below the January highs. The drop off in momentum though is much clearer on the 4-hour chart and is actually more focused on the near term action as we’ve approached those January levels.

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Having hit a new high earlier in today’s session (just), the UK100 once again pulled back and the MACD – both the histogram and MAs – and the stochastic displayed clear negative divergence with price. The fact that this happened as we also near the previously mentioned all-time high gives further possible reason to why this happened.

UK100 4hr

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The result is that we may be seeing the index failing to make a new record high from a longer term perspective and the short term rally running out of legs. This brings two important levels into consideration. To the upside, 7,318-7,321 in an important resistance and if the rally is going to be sustained into those record highs, the momentum indicators may need to confirm what’s happening on the chart.

To the downside, 7,250 marks the possible neckline of a double top on the 4-hour chart, a break of which would be quite bearish and – based on the size of the formation – could trigger a move back towards the 7,180 region.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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