Hello. Welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst with City Index. We're going to continue taking a look at the markets because we, in the recent series of these videos, talked about how to use different ideas and different strategies. But the markets are really hotting up at the moment, so we'll take a look at one of the markets.

As always, this simply is for information purposes only and is not to be taken for advice.

So we'll use technical analysis because that's the key feature that we're focusing on and this is a FTSE 100.

Now you'll notice that there are several aspects that we're going to focus on. This is the weekly chart and straight away towards the right-hand side you can see that the FTSE has been struggling at the 6,050 to 6,117 area which we've talked about for several weeks right now.

What's really interesting is that if we take a look at the weekly moving average, the FTSE is now trading, and has also closed below that moving average, so that suggests that there should be some further weakness ahead.

That doesn't mean to say that the FTSE can't rally from here.. But when you start seeing on the weekly charts markets closing below moving averages, you often... at least even short periods of time, quite often see a continuation. But also notice that the relative strength index, that has also started tapering towards the downside.

Now, this is a close-up. The first thing that you'll notice is that there is a divergence on the technical indicator which is at the lower part of the screen. That's the RSI. So in other words, what actually happened was as the market was trying to head higher, the index itself, the technical index, was actually moving lower, so that's suggesting that there is a divergence between technical indicators and price.

Now, ideally what we would say is that if the indicator is falling, that there is weakness in the current move and that's exactly what happened. The FTSE has been unable to break above the 6,101 area. So as you can see, the market has recently closed below that 20 MA and it's suggesting that there is further weakness to come.

However, what the bulls are going to have to do to reverse this decision is to really take this market back above the 6,101 area and that would help lift this market much higher towards at least the 6,117 area and possibly even towards the 6,250 area.

Now also bear in mind that we're in the month of May and this is where we often see reversals historically. So all of this information is telling us that the markets are consolidating, there is weakness in the current move towards the upside. We've seen it close below the 20 MA. That would support more of a bearish move, or more of a bearish view I would suggest. But as I said, the bulls would really need to get above the 6,101 area.

Now here, this is the weekly chart, but we're looking at candlesticks. Now we notice that there hasn't been any major reversal signals, but recently, three bars ago, we did have a bearish engulfing bar and that was suggesting that the market should move towards the downside. We sort of saw a follow though, but we didn't actually see a very sharp move. That's what I would expect after we see a bearish engulfing and that actually hasn't happened yet.

So there are some mixed signals here on the weekly chart. We have ideally, a bearish scenario. We also have no follow through which is suggesting that the bulls might be able to lift this market higher if they can at least break out towards the upside. Otherwise, the recent downturn could be considered as just a standard pullback. So this really is a very awkward situation for both the bulls and the bears.

The 5,594 is a key pivot level. If that 5,594 area has been broken, that would suggest that the high would be intact at 6,101 and we could be heading much lower than 5,594, possibly down towards the 5,300, even the 5,250 area.

Now here's a daily chart. The first thing we notice is that the parabolic has been broken towards the downside, so on the shorter term timeframe, this is bearish. I've labelled this as A, B, C because that's what you often see in corrections. You typically see a 1, 2, 3 or an A, B, C type of correction.

Now the daily bar, as you can see, the last daily bar has been a bullish signal, so we would expect to see at least some short-term follow through towards the upside. Up to where? Well I would put your parabolic indicator on and as long as the FTSE on the daily chart is below that parabolic indicator, the short-term trend is down.

So the intermediate to long-term trend is in a consolidation. The short-term trend is down. This really is a time to stand aside until we get clear cut decisions from the market.

So, as always, always use a large degree timeframe. That's the weekly to the monthly charts and then use a lower timeframe for the dailies and even the hourlies in the current market environment for short-term moves and use technical tools. I've kept it simple. I've used a moving average and parabolic SARs and the relative strength index to help us to clarify the decisions of which side of the market we would want to be on and then as always, keep it simple and especially in the current market environment with the volatility increase, always use stop loss orders.

I hope this lesson has been useful to you. I look forward to seeing in the next lesson. Have a great trading week.