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The best trading opportunities occur when both sentiment and the Elliott wave pattern point in the same direction. When sentiment is bullish there an increased probability the FTSE 100 will rally. Sentiment is bullish right now but the Elliott wave pattern points to a decline, so no high confidence in one outcome or the other. Sentiment has been boosted by the rally in the US which itself has been boosted by earnings reports. Last night Apple’s earnings have been well received by investors, the stock rallied in after hours and the S&P 500 rallied too. But this morning markets are down again because the Trump administration is considering higher tariffs on $200 billion in Chinese imports. Bloomberg reported the story during the night and the S&P declined sharply. According to Bloomberg, they are considering doubling the tax on import.
Naturally investors don’t like this story, economists see the tariffs as bad taxes. Tariffs impose costs on the country setting them, they fuel inflation and hit the profits of US exporters because China and the EU and other countries will retaliate with tariffs on US goods. Also the US do not have the manufacturing process in place to produce cheaply because the US has been relying on cheap imports for too long. Most of the stuff consumers buy is imported. So US consumers will still buy imported goods but at a higher price. This will fuel inflation and bond yields will rise and stock investors don’t like high bond yields. This is why each time the tariffs are mentioned the stock market goes down.
US bond yields are rising slowly, they are back near 3%, a break above that level would prompt a sell off in the stock market. I expect yields to move above 3% soon, new tariffs are coming into force and they will push prices up, plus oil is trading at four-year high. The FTSE broke above the previous high but the pattern is still a rising wedge, a complex one because it is difficult to know where wave (ii) and wave (iii) ended. You can see on the chart wave (ii) is now large in time and sideways, wave (iii) and wave (v) are in three waves [a,b,c] which is the structure in a rising wedge. The rising wedge is a bearish pattern, this is why I think there is a good chance the FTSE will go down. But we need sentiment to turn bearish as well, sentiment is a powerful indicator and when it is bullish, the FTSE will be strong.
Thierry Laduguie is Trading Strategist at www.e-yield.com
