Looking At A Long Trade In FTSE

Now this might seem surprising, given that I’m as bearish as Baloo, but I’m looking for the next long trade in FTSE (^FTSE)!

OK, so that’s the sensationalist headline (and it’s sort or true), but bear with me on this one. I’m as happy as Larry to see stockmarkets fall this morning and, yes, I reckon they’re still way overbought. However, for me it’s still too early to get excited; all that’s happened so far is that option expiry has passed and a cool breeze has blown some of the froth off.

I need more evidence before I put on my furry coat, and the first step is to test the conviction of the next rally. This morning’s sell off in FTSE halted at the 200-period moving average on the 30-minute chart, and with the RSI seriously oversold I’m watching for a signal to go long (in a sample size only).

I’m using my MAV/RSI strategy and watching for the 5-period EMA to cross above the 6-period SMA by at least 3 points, combined with an RSI above 52. This is simply following a mechanical strategy and not a high conviction trade so I’ll be using a smaller size than usual and keeping a tight stop loss. I’ll be looking to take some profits at 5160, where there’s quite alot of S&R action on the chart.

If there’s little follow through on the upside that’ll increase my conviction for the trade lower, first to the Parabolic SAR at 5060, then the bigger tests of 5000 and the rising 21-day MAV, currently at 4966. As the slow morning approaches lunchtime the key factor will be how the US traders decide to react.

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