The ESI (e-Yield Sentiment Indicator) measures market sentiment. Right now it is bearish which means, with the FTSE 100 still trading near the recent low, there is a chance the low at 6492 will be broken. This is the main risk especially if relations between Russia and the West deteriorate further.
But downside is limited, the FTSE 100 is already down 5% from its February high, prices are below the 200-day moving average and the timing indicator, 13-day BTI, is near oversold. Check the 13-day BTI on the following chart:
When the 13-day BTI is below -400 the FTSE is oversold and likely to bounce back. The indicator dropped below -400 last week but today the 13-day BTI is no longer below -400. It appears that a rally is underway. This is supported by the position of the S&P 500.
The S&P is still in a clear uptrend, the US index should rally, therefore there is potential for a rally here in the UK in the short term. Given the problems between the West and Russia and the bearish sentiment it is possible that the stock market is entering a new phase, one in which the stock market will go sideways or down in the long term.
In the short term I still expect a rally but it won't be back to new highs, the rally will be a counter trend move with limited upside because sentiment is still bearish.