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Technical Analysis GB100 : 2016-10-14

Uncertainty about EU exit deal weighs on UK market

UK stocks hit record high as British economy performed better than initially feared after vote to leave EU. But uncertainty about the actual deal after exit negotiations weighs on UK economic outlook. Will the GB 100 index continue rising?

GB100 stock index has risen more than 21% hitting all time high after Britain voted to leave the European Union on June 23. Economic reports have showed British economy fared better in the aftermath of the Brexit vote than initially feared. Recent data confirmed the positive trend: manufacturing sector expansion was higher than expected in September with Manufacturing PMI rising to 55.4 from 53.3 in previous month. Construction activity also expanded at a faster pace than expected. Manufacturing production rose 0.2% in August following 0.9% contraction in July while industrial production declined 0.4% compared with 0.1% growth in July. The positive trends were partly due to weaker Pound which made UK products more competitive in overseas markets. At the same time uncertainty over the outcome of Brexit negotiations weighs on long term UK growth prospects. Impaired access to European Union common market may negatively affect business investment and growth. On Wednesday UK Prime Minister Theresa May agreed to allow members of parliament scrutinize the government’s strategy over the UK leaving the European Union. This alleviated concerns UK may end locked out of European Union common market in a hard exit deal with Parliament’s vote on the deal seen as increasing the chance UK could stay in the common market. British Pound rebounded from multi-year low following the news. On October 19 headline inflation for September will be published, it is expected to improve from previous month. And on October 19 labor market data will be reported: unemployment rate is expected to rise 0.1 percentage point to 5.0% in August with earnings growth slowing compared with the previous month. And on October 27 third quarter preliminary GDP will be released: the growth is expected to slow down from the second quarter.


On the daily chart GB100: D1 has been declining after hitting all time high couple of sessions ago. The price is falling after forming a double top pattern.

The Parabolic indicator has formed a sell signal.
The Donchian channel has tilted upward, indicating uptrend.
The MACD indicator is above the signal line with the gap narrowing. This is a bearish signal.
The stochastic oscillator is falling but hasn’t crossed into oversold zone yet.

We believe the bearish momentum will continue and we can go short right away. The stop loss can be placed above the last fractal high at 7129.28, confirmed also by upper Donchian bound and Parabolic indicator. After placing the pending order the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop-loss level (7129.28) without reaching the order we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Technical Analysis Summary

Position Sell
Sell limit Above 6897.59
Stop loss Above 7129.28

Friday, 14 Oct, 2016 / 1:44

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