This first chart is a 1 year daily chart of the FTSE 100 over which I have laid trend channels. Trend Channel Analysis (TCA) is a helpful tool for both short-term traders and longer term trend followers. TCA has an uncanny ability of defining the boundaries of a directional move in a market and is particularly accurate when applied to indices.
The green lines represent the 3 year trend channel while the blue and red ones define the intermediate-term support and resistance. The FTSE tested its intermediate-term support (circled) and bounced strongly fuelled by the news of a short-term resolution of the Greek debt crisis.
The second chart shows the Williams %R indicator which is signalling (circled) that the FTSE is now overbought and due a pullback in the next few days/weeks.
The Williams %R indicator was developed in the late seventies by commodity trading expert Larry Williams, author of How I Made One Million Dollars Last Year Trading Commodities.
The indicator works by showing the current closing price in relation to the high and low of the past N days – in this case 14. Readings on the indicator range from -100 to 0 with those the upper range, from about -10 to 0, indicate the security is extremely overbought while readings from about -90 to -100 suggest it’s extremely oversold. Today it’s -4.07.