The UK 100 stock index (cash) bounced above the four-year low of 5,698 on Tuesday to lose some ground again on Wednesday despite the Bank of England reducing interest rates by 0.50 bps at an emergency meeting.
With the RSI bottoming twice near its recent lows and jumping above the 30 oversold mark and the green %D Stochastic line rising above the red %K line, expectations are for the market to resume positive momentum in the short-term.
Nearby resistance to upside corrections could be met around 6,250, which if significantly violated could generate additional gains towards the 6,460-6,535 former supportive area. Slightly higher there is another obstacle between 6,590-6,720.
In the negative scenario, if the bulls fail to accelerate above 6,250, the focus will shift back to the downside and specifically towards the 5,870-5,698 strong support zone. Should the sell-off continue, the 2016 troughs of 5,600 and 5,500 could be the next targets.
Looking at the bigger picture, the sentiment is expected to remain bearish as the 50-day simple moving average (SMA) is crossing below the 200-day SMA. A rally above 7,000 would resume a neutral profile.
Summarizing, the UK 100 index is expected to hold above its four-year low in the short-term, with the bulls likely looking for a close above 6,250 to stage a more meaningful rally. In the long-term timeframe a climb above 7,000 is required to bring the neutral outlook back into play.
