The FTSE 100 got hammered on Monday, just as almost all risk assets did. In fact, the market gapped lower right at the open and then continued falling until we reached all the way down to the 200-day EMA. With that in mind, it does suggest that perhaps we could see further downward pressure, because we have closed towards the very bottom of the range for the day. In fact, I think that if we break down below the bottom of the candlestick for the trading session on Monday, it is very likely that we will continue to see selling for the next several sessions.
A lot of what we are seeing now is due to the fact that traders are concerned about more lockdowns in multiple countries around the world. We have already seen them happen in places like Indonesia and Australia, and cases are starting to pick up in the United Kingdom, although today was technically “Freedom Day”, or the day when the lockdown rules were stopped. In a bit of irony, a couple of big name government officials have had to self-isolate due to a COVID-19 infection.
At this point, I think that the triangle that I have marked on the chart has been fulfilled as far as the “measured move” is concerned. The question is whether or not we can continue to go lower. Typically, we do, and if we break down below the 200-day EMA it is likely that we could go looking towards the 6500 level. The 6500 level is a large, round, psychologically significant figure, so I think there will be a little bit of reaction there as well.
We could see a little bit of a bounce during the day on Tuesday, but we typically do not see this type of selloff unless there is follow-through eventually. That being said, I think there is a significant amount of resistance at the gap that we formed at the open. The 7000 level above there offers a lot of resistance as well, especially as the 50-day EMA is sitting in that area. The 200-day EMA may be a significant support level, so if we get a couple of days in a row that are supportive, I may change my attitude, but right now it certainly looks as if we are threatened to the downside.
