FTSE : Risky Support

(Fri, 2 Oct 2020). Recently, the FTSE traded towards the bottom of a channel that has been building since June. The price action, however, suggests that the days for the channel could be numbered with what appears to be a growing lack of interest by buyers to buy into weakness.

The area right around 5770 has held on three occasions in the past month, a break below may also push the index through the lower side of the channel. A break beneath the lower parallel will require a decline beneath ~5660.

At that juncture, having left the orderly confines of the descending channel, an acceleration is seen as likely with the March lows under 5000 potentially coming into view. For this to happen, though, we will almost certainly need a global risk-off environment, an event certainly in the realm of possibility given the current volatility regime. With that in mind, continue to keep an eye on the leading U.S. markets. They need to start buckling to get the rest of the globe flowing downhill.

While the outlook looks favorable for shorts, support may still hold, which is why it is prudent to wait for support to break first before running with an aggressive bearish bias. For those who have a contra-view, looking to support as a potentially good risk/reward proposition may be the preferred approach. The line-in-the-sand is clear, so both sides of the tape have it work with in shaping their trading plan.

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