Hot Features
Premium
Register to chat with like-minded investors on our interactive forums.
Our timing indicator 13-day BTI is still near the overbought level, a continuation of the rally in the FTSE 100 will push this indicator to overbought. Such a move would create a sell signal. A more ominous signal could be given by the second timing indicator, 34-day BTI. This indicator is approaching overbought too. This one is a more important timing indicator, sell signals generated by the 34-day BTI can result in a large decline. The FTSE 100 could fall by 7%-10% in the next few months.
Sentiment is positive but as the rally continues, bullish sentiment will reach an extreme. When this happens the stock market will turn down. Based on my indicators we are not far away from the turn, I estimate that the FTSE 100 is within 60 points from the top. Today’s ECB press conference at 13:30 could be the catalyst. Any mention of stimulus and the FTSE 100 will rally above 6900. The question is what next?
Based on the Elliott wave pattern a move above 6900 would coincide with the upper line of a long term ending diagonal which is a terminal pattern. Terminal because this pattern is in five waves and the top of the fifth wave is currently at 6938. The completion of this terminal pattern should be followed by a large decline. That sounds like the message given by the 34-day BTI.
Of course we don’t know what the outcome of the ECB meeting will be. If the ECB does not act to support the economy the market will be disappointed and we could see a sell off later. In this event the sell off would coincide with a wave b (circle). Note that each leg of the ending diagonal has been in three waves [a,b,c (circle)] or [w,x,y (circle)]. What is not clear right now is the shape of wave 5. This wave does not appear to be in three legs, this is why a pullback is needed before the FTSE completes its fifth wave at the top of the upper line. Given the position of wave count and the timing indicators we can expect a large decline starting from the area above 6900.
Thierry Laduguie is Trading Strategist at www.bettertrader.co.uk
