Author: Vin Coco, participant of the Analyst Contest
The forecast drawn up on May16 of a bull action seems to be in standby for now: yesterday’s candle has attenuated most of bull enthusiasm (please note how the long white candle had “enwrapped” the body of the previous 7 sessions).
Most of the role of the price rejection has been played by the resistance of the upper part of the last week small box range (blue square), but also the round number 6200, the SMA20 (blue) and EMA (green) have contributed.
And today’s action, a High Wave candle with long shadows, appeared about in the middle of the box range, shows that the market is confused.
So I think is worthwhile to also start considering other possible setting that may arise from this situation. Assuming there is still an upward movement, it could suggest in the medium long term the following bear setting:
Scenario 1: Right-Angled Broadening Formation.
In this formation, the top trend line slopes upwards (ascends) and the bottom trend line is horizontal, or nearly so. Like other broadening patterns, the breakout can occur in any direction, but this pattern usually reverses the trend. After at least two touches of each trend line occurs, we should wait for a partial rise (the purple arrows show a hypothetical price movement).
In the UK100 at this moment there is not a clear sign of partial rise: most of the time this is the prerogative that typically predicts a future breakout downwards.
But please consider that also a premature breakout could happen although it is quite rare in this patter.
And, of course, the price sometimes can move laterally for some other days before moving outside the formation, high or low.
Scenario 2: Complex Head & Shoulder in formation.
This is a variation of a classic H&S top; it could have multiple shoulders or multiple heads, but rarely both. In the UK 100 the right shoulder (1 or more) hasn’t clearly formed yet and we have instead 2 left shoulders.
But, if we take into account the possibility of a partial rise described above (maybe up to 50 or 61.8 of recent fibo retracement) this criteria could be considered fulfilled.
So in the case of a decisively daily close below the neck line, the target area would be roughly in the area of 5700 (round number and also 76.4 fibo level).
Let’s see how the situation evolves in the next sessions.
Any comments and suggestions below are very welcome.