Stock markets dropped sharply last week after Argentina defaulted and more sanctions were imposed on Russia. Despite positive earnings momentum, sentiment turned bearish but the correction does not appear to be the start of the next bear market. The latest sell off appears to be another pause in the bull market. This week we could see a continuation of the sell off today followed by a rally the rest of the week.
Fears of further decline on Wall Street dragged Asian shares lower today. European shares and in particular German shares have been the worst performer as German companies are heavily exposed to the Russian economy. If the sanctions on Russia are bad news for German companies, there are fears that the slowdown will spread to other European countries. Friday's US job data provided evidence that the US economy is not growing strongly. The fear is that once tapering ends in October the US bull market will stall. So investors are getting out now.
Yet, there is no reason to panic, each correction in the last three years has been followed by a rally to new highs. The bull market remains intact. Based on the long term Elliott wave pattern (daily chart) the bull market is not yet over. An ending diagonal in five waves [1,2,3,4,5] is unfolding. I believe that the current move down is still wave 4, wave 5 up has yet to come.
|FTSE 100||Today||Next few days||Next few weeks|
|Key Reversal Levels|
|FTSE 100 cash||above 6783.5||above 6825||below 6560|
|FTSE 100 Future||above 6738||above 6779||below 6514|
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