Though the FTSE has outperformed most other equity markets in recent weeks, it has entered into a relative downtrend against the STOXX Europe 600 — an ominous signal according to Andy Dodd, Head of Technical Research at Louis Capital Markets.
Dodd had previously said that the key level for FTSE is the resistance at 6412.44 as it coincided with both a downtrend and the neckline of a Head and Shoulders reversal pattern (see Chart 1). The break above 6412.44 confirmed that pattern, allowing for more upside towards the next resistances at 6697 and 6876.
Dodd now thinks, however, that the move higher is starting to look stretched; the weekly chart posted a bearish Hanging Man candlestick pattern last week and the index also entered into a relative downtrend against the STOXX Europe 600 (see Chart 2). As such, Dodd believes that further upside for FTSE will be limited whilst this relative trend is intact.
Read the full report, including an analysis of the following futures markets:
Dow Jones 30
Dow Jones Transportation Index
EURO STOXX 50