A few weeks before Christmas, British Prime Minister David Cameron appeared to torpedo the European efforts to resolve the eurozone crisis when he declared Britain would not be part of the proposed debt support plans. It was an unpopular decision in Europe but a popular decision in Britain. The popularity of the decision is supported with an important change in the London FTSE index.

The FTSE had developed a long-term bearish pattern. This was a rounding top pattern and it began in 2010 July. The rounding top pattern is created by a slow rise in the market. The momentum of new highs begins to slow so the rise is best defined with an upward sloping curved line along the top of the high points. This is best seen on the weekly FTSE index chart.

The rounding top is completed when the market loses momentum and starts a new series of lower highs. The decline is usually slow and the trend is best described with a downward sloping curved line along the top of the highs. The combined upward and downward curves create a rounding top pattern.

This chart pattern is usually considered a long-term bearish pattern. The distance between the base of the pattern and the peak is measured. This value is then projected downward from the base of the pattern to set a downside target. When this calculation is applied to the FTSE index it gives a downside target near 4500. This is the upper level of the 2008 FTSE index consolidation prior to the 2009 upward trend breakout.

Every market has its own characteristics. The rounding top pattern makes a regular appearance in the FTSE index. The rounding top in the FTSE index starting in 2006 and ending in late 2007 provided accurate downside target calculations for the 2008 market collapse. It is this historical pattern compatibility that makes the current FTSE index activity significant.

The weekly chart shows a close at 5719. This close is created on the back of low trading volumes over the Christmas period but it cannot be ignored. The close above 5700 has two important features.

The first and most important feature is that the close is well above the value of the rounding top trend line near 5550. This is a significant rally breakout above the value of the rounding top pattern.

The second important feature is the move above the support and resistance level near 5600. This has been a very significant support and resistance level starting in 2006. The level has been tested many times. It was a strong support level between November 2010 and July 2011. The fall below this support level in August 2011 was an important confirmation of the bearish rounding top pattern.

The breakout above this 5600 level and the move above the value of the rounding top trend line suggests the FTSE index is developing a new bullish upward trend. The pattern of the breakout is too immature to allow the calculation of upside targets. After the initial breakout the FTSE index will develop some retreat and rebound activity and this will be an important test of the strength of support near 5600. If this support holds then the first upside target is near 6100. This target is the resistance level created in 2011.

A retreat below 5600 is bearish. In this situation it may be possible to validly re-position the calculation of the rounding top trend line and set new downside targets. This will depend on the height of the current breakout rally. However the rounding top trend line must touch a large number of the significant highs on both the rising and the falling sides of the rounding top pattern. The correct placement of the line must also not exclude any significant high points in the index. The rounding top trend line must be a best-fit calculation that includes all the index activity. The current location of the rounding top line is the best fit and this makes the move above 5700 significant.

The author is a well-known international financial technical analysis expert.