Sentiment is still bullish and stock markets rallied further on positive news. Markets were lifted by strong US housing starts and building permits on Tuesday, and strong earnings from Dow component Home Depot. Investors are focusing on the economy and earnings instead of geopolitical concerns, however, the situation in Iraq and Ukraine is volatile and violence could escalate at any time.
For now the trend is up and timing indicators 13-day BTI and Top 20 Differential are no way near overbought (13-day BTI below 400, Top 20 Differential below 2.5%) therefore the rally should continue. These escalations of violence create buying opportunities, when sentiment is positive investors are not afraid to buy the dip.
The FTSE has rallied strongly in the past ten days, the index is now back above the 200-day moving average. Many fund managers see a move above the 200-day moving average as a reason to buy, the fact that the index is above the average will attract buyers. Yet markets don't move up in a straight line, the FTSE has not had any significant pull back since 8 August, there is now a good chance the index will pull back and this will provide an opportunity to buy.
|FTSE 100||Today||Next few days||Next few weeks|
|Key Reversal Levels|
|FTSE 100 cash||above 6810.5||above 6859||below 6491|
|FTSE 100 Future||above 6806||above 6855||below 6487|
The trend is likely to reverse when the trend reversal is 75%. A breach of a key reversal level implies a neutral position.