Having bounced off the upper trend channel on Friday the technical setup for the FTSE 100 index now looks distinctly bearish.
As the chart below shows the stochastics are heading lower and there is now a huge downside gap for the index to fill before it’s likely to find support.
The Stochastic Oscillator is a momentum indicator that compares the closing price of an asset to its price range over a set period of days. The concept behind this indicator is that an asset will tend to close near its highs during a bull market and near its recent lows during a bear market.
The Stochastic Oscillator follows the speed or the momentum of the price of an asset, and often it is the momentum that changes direction before the price. As a result the Stochastic Oscillator can be used to predict trend reversals, which is why I like to use it in conjunction with Trend Channel Analysis.
If the index remains in its current trend, it won’t find support until around 4,150 which is 19% lower than it is today.