Stock markets continue to advance on positive data and a good dose a bullish sentiment. The latest economic data from China was disappointing, the Chinese HSBC manufacturing PMI was lower than expected. In Europe German manufacturing PMI beat estimates but retail sales in the UK were weak. The market reacted positively to the latest US data, both existing home sales and Philadelphia Fed survey were higher than expected.
There is now a feeling that the US economy is improving nicely without an imminent rise in interest rates, this is a positive development for stocks. For some reason, when the environment is favourable for a rally the stock market will always pull back. This is due to the way the market moves up. After a strong rise people will take profits before the rally ends. This is where we are now. I expect profit takers to move in and the market will go down to complete the fourth wave in the S&P and wave b (circle) in the FTSE.
The S&P made a new high above 1991, the FTSE is still below its previous high, the bearish divergence between the two indexes continues. Given the sideways pattern over the last twelve months it seems that the FTSE will struggle to move above 6950. The FTSE is no longer in a bull market, it in a consolidation phase that is a slow reversal pattern. This will lead to a bear market.
|FTSE 100||Today||Next few days||Next few weeks|
|Key Reversal Levels|
|FTSE 100 cash||above 6793||above 6833.5||below 6491|
|FTSE 100 Future||above 6789||above 6829||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.
Research provided by e-Yield