UK100 – Bear market rally or market bottom?

Rally runs out of steam

It’s been quite a 24 hours in stock markets, with risk appetite suffering due to a combination of factors including earnings and global recession warnings. This was always going to test this new-found bullishness in the markets.

As always, these may have been the catalyst for the sell-off but there will be other underlying factors as well. For example, just prior to stocks turning red, the Dow has made up 50% of those remarkable losses incurred in late February/early March and peaked around 24,000. It’s not altogether surprising that this was viewed as a good time to take some cash off the table, especially going into an incredibly unpredictable earnings season.

UK100 (FTSE 100) Daily Chart

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Whatever the reason, the break of the trend line suggests the near-term trend has shifted and stocks may come under a little pressure. The 55 and 89 SMA band on the 4-hour chart could be an interesting first test, coinciding with prior support and resistance , potentially even triggering a little retracement to the upside. But if that’s all it is – and I suspect it may be – the real test lies around 5,350.

This is the 50% retracement level of the move from the lows to this week’s peak and could tell us whether this is a bear market rally or a bottomed market with strong upside potential. A break of 50% doesn’t confirm the former, it should be stressed, but it would certainly strengthen the case. Below here 5,200 will be interesting (61.8%).

UK100 (FTSE 100) 4-Hour Chart

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