Chart 1 – Weekly Bar Chart FTSE 100

Since the referendum on the 23 June 2016, the price action surged higher from 5448 to the recent highs in 2018 of 7888.5, with the bull run of over 2000 points adding 40% to value of the index over 2.5 years. We could argue that stock markets are a better pricing mechanism as they are a forward-looking valuation, and clearly, the concern of a Brexit did not weigh in a bearish sense. Since the high in 2018, we have seen a pullback to the 50% level (spoken about by Gann well before the term Brexit was ever coined). That decline aligned with the global move in equities and the rally from December is also in line with global markets. The price level of 7200 will be a key area to watch.

I recently used the example of the FTSE to show someone in the funds management industry (who doesn’t believe in technical analysis) that the patterns of price and time in this market have been occurring long before Brexit came along. This example may be one you can use as well to confirm (or prove to yourself) that the main premise Gann and David discuss of history repeating is in fact valid.

It’s critical that you do the work as opposed to taking my word for it. Chart 2 shows a lows resistance card from the 1984 low. The price of the low is 975 points (this is also the case of an all-time low on another market I follow )

Chart 2 – Monthly Bar Chart FTSE 100

The key areas to note here are the major lows from 2003, 2009, 2016 and the recent low in 2018. The challenge is to understand what these 4 lows have in common. The first clue will come from the low’s resistance card.

My next suggestion would be to break down the runs into these four lows and see if there are any similarities, remember to look for expansion and contraction of known time frames and price ranges.

To give us a sense of the current trends in this market we, of course, turn to our swing charts. I am sure if you asked the person on the street, they would likely have a different view (when looking purely at the headlines.)

If we zoom into the current picture, we see the price action has stalled at 50% of the bear range of 2018. The “easy money” on the long side has probably been made in the moves from late January. The greatest asset we have is we don’t have to be in the market all the time, waiting for some confirmation of a break above 7181.5 would be wise as the market has stalled a number of times at that level.

Chart 3 – Daily Bar Chart FTSE 100

If we consider that the 50% in price level has been hit, we could be waiting for time to catch up. That suggests we watch 110 days (50% of 219 days) for a time pressure point. This projected forward from the 2018 low tells us to watch 15 April. A keen student would then go back and see if that area of April has offered areas of significance in previous years?

If you are to be an independent trader, you must ignore the “noise” including me. This allows you to focus on your techniques and skills you have acquired. This is one of the hardest tests you will find in markets as David said you have to be an “Island”. In the day and age of technology, we all find this harder and harder. My personal experience has been one that supports this notion.  Since I moved away from working directly with traders, I have found it far easier to maintain that independent thinking as any trading ideas I generate are between me and the market with the least amount of filters. This means the market provides me with direct feedback.

With regards to the future of the UK and the impact of Brexit I cannot tell you what will, may or won’t occur. What I can say is if I focus on my swing charts, ranges and time frames I am more likely to align my trading ideas with the market than by reviewing the 576 000 000 Google hits.

Good trading,

Aaron Lynch