We took 200 pts on the FTSE 100 this week and now we are long. The reason is because the latest decline was in five waves and the Top 20 Differential is oversold. Here are two reports explaining why I expected a decline on 4thFebruary and why I am bullish now:
FTSE 100 Forecast 4th February
FTSE 100 Forecast 10th February
Stocks are going down because investors have lost confidence in the central banks. I said many years ago that this would happen, simply because the Fed or any central bank cannot manipulate the stock market for ever. Central banks can move the market as we know but if their actions last many years and investors don't see any results, they will slowly lose confidence. QE started in 2008, there have been numerous programs and other operations to stimulate the economy and the stock market in the US, Europe, China and Japan, yet we are heading for deflation. That was never the expected result. Naturally people are now worried but it's taken seven years for people to realise it's not working.
So it's not surprising that when Yellen tried to be dovish during her two-day testimony the stock market sold off. The question now is if investors don't trust central banks, who is going to reassure them? I believe that any good news will have a temporary effect on the market which means rallies won't last.
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