Analysing the FTSE 100's Summer Consolidation
Since mid-May, the FTSE 100 index has been in a consolidation phase. In this analysis, we'll build a picture of this phase by sequentially adding technical indicators to the daily candle chart of the FTSE 100. While technical indicators can provide valuable insights, overloading a chart with too many can be overwhelming. We'll take a methodical approach to enhance clarity and understanding.
Horizontal Support and Resistance
Let’s start with the fundamentals of price action trading – horizontal support and resistance levels. For many traders, these levels are all that is needed to make informed decisions.
Even this minimalistic view of the FTSE provides valuable information about market price action. We can see that the market has started to establish an area of support in recent weeks. During the last month, the FTSE has formed four swing lows around a similar level.
Past performance is not a reliable indicator of future results
Price Pattern Observation
By mapping the recent series of swing highs and lows, we can see a wedge pattern starting to emerge. This wedge suggests that the market is being "funnelled" into an apex, a formation that often precedes significant trending moves.
Past performance is not a reliable indicator of future results
Anchored VWAP
Adding the volume-weighted average price (VWAP) anchored to the April swing lows, which preceded the last trend leg higher, we see that the FTSE is consolidating around the anchored VWAP. The VWAP is moving horizontally, indicating the market has reached a short-term equilibrium.
Past performance is not a reliable indicator of future results
Fibonacci Levels
Adding the 50% Fibonacci retracement of the recent trend from April to May, we find it aligns with the horizontal support levels formed over the last month. This adds depth to our market structure analysis.
Past performance is not a reliable indicator of future results
Volume
Finally, we add a volume histogram to our chart, which shows decreasing volumes in recent weeks – a common summer trend. A breakout above the wedge on rising volume may indicate the FTSE’s long-term uptrend is ready to resume.
Past performance is not a reliable indicator of future results
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80.84% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Horizontal Support and Resistance
Let’s start with the fundamentals of price action trading – horizontal support and resistance levels. For many traders, these levels are all that is needed to make informed decisions.
Even this minimalistic view of the FTSE provides valuable information about market price action. We can see that the market has started to establish an area of support in recent weeks. During the last month, the FTSE has formed four swing lows around a similar level.
Past performance is not a reliable indicator of future results
Price Pattern Observation
By mapping the recent series of swing highs and lows, we can see a wedge pattern starting to emerge. This wedge suggests that the market is being "funnelled" into an apex, a formation that often precedes significant trending moves.
Past performance is not a reliable indicator of future results
Anchored VWAP
Adding the volume-weighted average price (VWAP) anchored to the April swing lows, which preceded the last trend leg higher, we see that the FTSE is consolidating around the anchored VWAP. The VWAP is moving horizontally, indicating the market has reached a short-term equilibrium.
Past performance is not a reliable indicator of future results
Fibonacci Levels
Adding the 50% Fibonacci retracement of the recent trend from April to May, we find it aligns with the horizontal support levels formed over the last month. This adds depth to our market structure analysis.
Past performance is not a reliable indicator of future results
Volume
Finally, we add a volume histogram to our chart, which shows decreasing volumes in recent weeks – a common summer trend. A breakout above the wedge on rising volume may indicate the FTSE’s long-term uptrend is ready to resume.
Past performance is not a reliable indicator of future results
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80.84% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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