The FTSE completed a decline in five waves [i,ii,iii,iv,v] from 10 April. This pattern is what you would expect to see in a downtrend, so it looks like the trend is down in the FTSE. The UK Index is struggling to move above its 200-day moving average, for this reason and given the decline in five waves the FTSE is already in a downtrend.
The current wave down is probably a third wave. Yesterday's rally occurred after negative developments in Ukraine, but US retail sales and Citigroup earnings pleased therefore I conclude that investors focussed on the good news. In terms of Elliott wave the decline in five waves should be followed by a rally in three waves and this is what we are seeing now. After the rally the UK index should decline to 6400. What is not clear is where the current bounce will end, we have two possible wave counts on the S&P (see below), one of them is a big rally.
The action in the FTSE is not confirmed by the S&P (unless I am wrong on the S&P) which means I don't have enough confidence to give a forecast. I would like to see a bearish pattern on the S&P, this would give me more confidence in calling for a decline.
I believe that the events in Ukraine pose a big risk to the rally, the situation is very volatile and despite the positive influence from earnings reports I would not like to be long. Instead I favour going short from higher levels.
The strong rally in the S&P yesterday suggests that the decline is over because we have three waves down [(a),(b),(c)]. I am not entirely sure that this is the case, the decline retraced only 50% of wave i (circle), if the pattern is an ending diagonal wave ii (circle) should retrace at least 61.8% of wave i (circle). For this reason we could see another decline to 1800 today. If this happens the move down will be in five waves as shown on the alternate wave count below:
If we assume that last Friday's low is the bottom of wave (iii) of a five-wave decline, the current move up is wave (iv) and this move should end below 1837.5 which is the bottom of wave (i). A fourth wave can not overlap the first, so today if the S&P fails to break above 1837.5 and goes sideways the odds of a five wave decline will increase and in this case the S&P will confirm the FTSE's bear trend. In this scenario the decline to 1800 would be wave (v).