Admitted and not granted (but on the other hand there is a bearish signal in place) that a downward movement on the FTSEMib index has started, let’s see what its trend could be
By Fabio Pioli, professional trader and founder of CFI Independent Financial Advisory (www.cfionline.it).
As written in last week’s article “FTSEMib: rise, will it all be over?” we entered short, with a signal that has shown us, since last week, that the market is no longer bullish. We also said that for sure we know every rule to follow to manage every swing that will occur from the beginning of the operation to the end.
So let’s not worry. We now need to establish a clear dividing line between operations and technical analysis and, given that operations take care of itself and since on these pages we can only write about technical analysis, let’s see what the technical analysis tells us. If the downturn has already begun, we can probably “paint” it as in Figure 1
Fig 1. FtseMib Future – Daily chart
That is, there was a first movement (1 in Figure 1), followed by a retracement (2 in Figure 2), which will be followed by a further bearish movement to break the lows of the previous one (3 in Figure 1). And here we must stop because we know only two things about this third movement: which cannot be the shortest and will be followed by another tracking (4) and a last bearish move (5).
This information, if we think about it, is not sufficient to set goals because the fact that the movement (or wave 3) does not have to be the shortest means that either it will be a very long wave, perhaps the longest of the 5 or which will be shorter than 1, with 5 in turn even shorter than 3. And it is also for this confirmation that it is useful not to rely on forecasts from technical analysis but on what the market will say in terms of operational signals. And if one wishes, and it is legitimate to do so, “imagine” where, going down, the market could go, here in Figure 2 the first supports and resistances are drawn which, of course, if one were to go there, would be “felt” by the prices: 25,585 points and 22,100 futures points.
Fig 2. FtseMib Future – Weekly chart
With the last specification that, I may be allowed to do it, “feel” does not mean, logically, neither that they will not be kept nor that they will not be broken. This, assuming that we get there, we will know at the moment.