The FTSE 100 rallied rather significantly on Wednesday as futures reached the crucial 200-day EMA. This is an indicator that a lot of people pay close attention to, and it should be noted that it is now offering a bit of resistance. There is also a gap there as well, so it does make sense that a lot of people would be looking to take profits on this bounce.
At this point, the real question is going to be whether or not there is a significant amount of resistance built into this region, which I think there is. Not only do we have a gap that is being tested, and of course has just been filled, but we also have the aforementioned 200-day EMA and the previous uptrend line all in the mix. Remember, it was not that long ago that we were in a nice uptrending channel, and now we are slamming against the bottom of it.
With this being said, signs of exhaustion will more than likely be sold into, and I think it would continue the downtrend. While there has been a strong move over the last couple of days towards “risk on behavior”, the reality is that not much has changed from a fundamental standpoint. Because of this, I do think that it is probably only a matter of time before sellers come in and push this market lower. If we broke down from here, it the very likely that the market would go looking towards the 6800 level, to retest the previous lows.
If we were to break higher, the next major battleground will probably be close to the 50-day EMA, which is at the 7363 level. I do not necessarily see that happening though, and this looks as if it is setting up for a perfect “sell the rallies” type of situation. This is especially true if other indices around the world get sold into, but everything had gotten so pessimistic that a bit of a relief rally was almost destined to happen. The size of the candlestick and the gap to kick off the Wednesday session is very impressive, but it still does not change all of the massive issues out there.