Wall Street continues to make new highs and today we have two important announcements, the Autumn Statement from the Chancellor at 12:30 and the FOMC statement at 19:00. Volatility should pick up this afternoon and we could see some sharp intraday moves so stop losses will be at risk.
Tonight, the message from the FOMC statement will probably be that of a committee ready to hike rates in December. It would appear the market has already priced in a rate hike. Furthermore today is the day before Thanksgiving so the mood will be positive tonight, at a time when the S&P is expected to pullback. US markets will be closed tomorrow and they will close early on Friday.
I am not saying the S&P won’t pullback but in general the market tends to rise during Thanksgiving, similar to Christmas. The question now is, will the pullback occurs before or after Thanksgiving? Given the positive seasonal influence the pullback is more likely to occur next week.
The FTSE rallied above the recent trading range, the sideways move is broken and the direction is up but for how long? The FTSE has been the laggard, I don’t think it has the strength to catch up with the S&P. We could see a move to 6900 at best, the rally is wave (c) and this move could end anywhere in the range 6850-6900.
The expected pull back in the S&P will coincide with wave (d) down in the FTSE. As you can see the timing of the pullback in the FTSE will coincide with the timing of the pullback in the S&P. If the S&P pulls back early next week, chances are wave (d) down in the FTSE will be delayed. The FTSE is tracing out a triangle [(a),(b),(c),(d),(e)] for wave iv (circle). This could be a descending triangle where wave (d) will end near the bottom of wave (b), wave (b) ended at 6709. In this case the next move is down to that level.
This morning I predicted a FTSE 100 decline, this move is now underway.
The wave principle is a powerful analysis tool to forecast intraday, short and long term moves. Take the chart below. Last night I warned that the FTSE 100 would undergo a severe correction today.
That is because Trump victory in the US election marked the start of a five-wave rally which is wave i (circle). The decline I expected is wave ii (circle), currently underway. You can't see the five-wave structure inside the rally on the chart but if you take a 15-min chart you will see five waves inside wave i (circle).
We continue to see resistance above 7050, the FTSE 100 rallied to 7067 yesterday before pulling back. The sharp pullback we saw occurred at a time when BoE governor Carney was speaking. I think investors concluded that the Bank of England won’t lower interest rates and further stimulus is unlikely.
This disappointment was followed by a soft earnings report from Apple (NASDAQ:AAPL) in after hours. The FTSE is now below 7000 which was a support area near the lower line of a rising wedge. The S&P 500 is really struggling to go up, as time passes the odds of an alternate wave count have increased significantly. Time is important because according to the pattern the S&P is in a third wave up, this means the rally should accelerate but so far this is not happening. As I said US investors are probably not active ahead of the presidential election. In this case the US index will continue to trade sideways until the second week of November.
The FTSE is weak for a different reason, it seems UK investors are taking money off the table in anticipation of bad news next year, also because they have made some good gains since June. I suspect the rally in the FTSE ended at 7129.8 and we are now at the start of a long term decline.
Yet sentiment is still bullish, which is not consistent with a decline. But this could change, the BTI nearly turned down two days ago. But failure to break above yesterday's high and continued weakness in the S&P does not inspire confidence in a rally. The rally is probably over.
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