For readers who are not familiar with the term FTSE100 – it is simply an index of the 100 largest companies on the London Stock Exchange. The index is maintained and owned jointly by the Financial Times and the London Stock Exchange.
The index came into being on the 1st of January 1984 with a base value of 1,000. It reached a record level of 6950.6 on the 30th of December 1999. The financial crisis of 2007 – 2010 saw it drop dramatically to 3,500. Since then it has recovered to a large extent, reaching a high of 6,091.33 on the 8th February 2011.
Analysis
If one looks at the price of the FTSE100 in relation to the Ichimoku Kinko Hyo cloud in Fig. 3.29, it clearly shows that the market is currently in a declining phase. The price is well below the cloud, which indicates that a long position at the present moment cannot be recommended.
The green Chinkou Span line is also well below the price, which supports the signal given by the Ichimoku cloud.
The Index started trading below the cloud after the earthquake/tsunami disaster in Japan and closed at a low of 5552.50 on the 16th of March. Since then it has recovered significantly, but during the last few days it has started drifting sideways with no clear direction being evident.
If the market should recover and break through the upper level Senkou Span A line of the cloud, this could indicate that the previous bull market has been restored and that we can expect further price increases.
A drop below the blue Kijun Sen line will, however, be a signal that the downward movement has gained momentum and in that case traders should look at a short position to cash in on a potentially significant price drop.
The contents of this report are for information purposes only. It is not intended as a recommendation to trade. InterTrader do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.
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