Play for Friday, May 22nd

Yesterday afterhours the FTSE reached as low as the 4310s, and it's now quoted in the 4340s.

Today, and also once we open again on Tuesday, I'll be looking to add to short positions if long term momentum is maintained.

I updated the trendline chart just below, and as you can see we have respected the neckline of the double top and we are still within the ascending channel.


We could find some strength at the levels we are at, and possibly retest the middle of the double top between today and when we come back on Tuesday. Ideally, I'd be looking to add below or at the 4440s: another touch of the 4500 level would be quite bullish.


We have the following bearish arguments on the table:

• Double top formation which requires a confirmation.
• Negative momentum on all long term time frames, intraday and daily.
• Daily and weekly RSI had both reached overbought conditions.
• Negative divergence on both daily and many longer term intraday time frames: see the 8 hour chart below.

Still, we need to penetrate the neckline of this double to complete the bearish picture.

Some divergence forming

While London is shut, my broker is kind enough to provide a quote on the FTSE nonetheless.

Given the non-existent volume I will be focusing on the US market today, but I'd like to bring your attention to the fact that some divergence has apparently began to build on intraday charts.

Now, this might relate to a simple retrace down, or the beginning of something larger: for now, I see some major divergence only on the 1 hour intraday, and would prefer to see it ripple onto longer time frames. However, it's something to pay close attention to.

Below is a hourly chart: I usually use RSI, ROC and the slope of the linear regression to spot divergence.


Update: as of US close the FTSE is quoted in the 4320s. The little divergence on the hourly has clearly broken as you can see in the chart below.

Quick update

Just a quick update, as I got back from my travels yesterday and have been looking at the action that has developed over the past few days.

Last night I saw some divergence forming on the longer intraday time frames, and took a speculative short at 4140 for a 10% fill. Nothing major, but given the negative divergence it was worth a shot. What didn't convince me completely was the intermediate rally we got between the two tops.


We found resistance in the 4160s area, and broke above on a few occurences. However, the 4160s also provided resistance on a previous occasion. Between the end of January and mid-February, the 4160s area had provided support a few times. I am watching closely if we break below the 4050s to 4060s, or if we remain range bound. The 4050s to 4060s area had also provided support back in January and early February.


Momentum is negative on intraday charts as I am writing this, but let's see what the US markets bring to us this afternoon.