Ichimoku Watch: FTSE 100 Approaching Ichimoku Cloud

22 May

Following UK inflation data earlier today, the FTSE 100 market index has continued to decline from its all-time high of 8,474 last week.

Technical Market

With the FTSE 100’s trend still firmly to the upside, the H4 timeframe is offering interesting price action at the moment.

Firstly, you will notice that as the index tested all-time highs, price action formed the head of a head and shoulders top pattern and recently drove through the pattern’s neckline (taken from the low of 8,406) to complete the formation. This has likely led to traders plotting the pattern’s profit objective at 8,330. This, on its own, suggests that the index could pull lower to test the pattern’s profit objective.

Secondly, price action has formed a possible bullish flag pattern (8,474-8,406). Price is now testing the pattern’s support line, and if this breaks, it will invalidate the flag pattern but strengthen the possibility that the index may reach the head and shoulders top pattern profit objective at 8,330. An alternative scenario to consider may also be that price continues to decline steadily within the bullish flag pattern’s boundaries until testing 8,330. That way, traders will likely look for price to breakout above the flag pattern’s boundary to help confirm bullish interest.

Finally, the Ichimoku Cloud (the difference between the Leading Span A and the Leading Span B) offers wide support, currently between 8,292 and 8,412, and holds the head and shoulders top pattern profit objective at 8,330. From the Ichimoku Indicator, you will also see that price is above the Lagging Span, which is a bearish signal, and the conversion line has recently crossed below the baseline, movement that is also considered bearish.

Price Direction?

The uptrend, the Ichimoku Cloud support area and the head-and-shoulders top pattern profit objective at 8,330 may be enough to drive buying within the Ichimoku Cloud support area if tested this week.