The FTSE closed up on the last trading day of 2016 and recorded a new all-time high. I always say that it’s not a good idea to short the index in December, unless we are in a bear market. The bear market has been delayed, and it looks like there will be more upside before the bull market ends.
Last month however, the Santa Claus rally was unusual, the FTSE was very strong relative to the S&P. As noted the FTSE is at a new all-time high but the S&P is more than one percent below its all-time high. This morning I wrote "the rally will probably extend because the S&P is in a fifth wave up and is expected to make a new all-time high". Well I predicted the rally to 7200 last week, see Download FTSE Short Term Forecast 161230
Now I think the FTSE rally has further to go, there is more upside before we go down to 6900. So I have a new short term forecast. I think 2017 will be an excellent year to short the FTSE 100. To receive regular analysis and trading signals on the FTSE 100 subscribe to the FTSE 100 short term forecast
Wall Street continues to make new highs and today we have two important announcements, the Autumn Statement from the Chancellor at 12:30 and the FOMC statement at 19:00. Volatility should pick up this afternoon and we could see some sharp intraday moves so stop losses will be at risk.
Tonight, the message from the FOMC statement will probably be that of a committee ready to hike rates in December. It would appear the market has already priced in a rate hike. Furthermore today is the day before Thanksgiving so the mood will be positive tonight, at a time when the S&P is expected to pullback. US markets will be closed tomorrow and they will close early on Friday.
I am not saying the S&P won’t pullback but in general the market tends to rise during Thanksgiving, similar to Christmas. The question now is, will the pullback occurs before or after Thanksgiving? Given the positive seasonal influence the pullback is more likely to occur next week.
The FTSE rallied above the recent trading range, the sideways move is broken and the direction is up but for how long? The FTSE has been the laggard, I don’t think it has the strength to catch up with the S&P. We could see a move to 6900 at best, the rally is wave (c) and this move could end anywhere in the range 6850-6900.
The expected pull back in the S&P will coincide with wave (d) down in the FTSE. As you can see the timing of the pullback in the FTSE will coincide with the timing of the pullback in the S&P. If the S&P pulls back early next week, chances are wave (d) down in the FTSE will be delayed. The FTSE is tracing out a triangle [(a),(b),(c),(d),(e)] for wave iv (circle). This could be a descending triangle where wave (d) will end near the bottom of wave (b), wave (b) ended at 6709. In this case the next move is down to that level.
We continue to see resistance above 7050, the FTSE 100 rallied to 7067 yesterday before pulling back. The sharp pullback we saw occurred at a time when BoE governor Carney was speaking. I think investors concluded that the Bank of England won’t lower interest rates and further stimulus is unlikely.
This disappointment was followed by a soft earnings report from Apple (NASDAQ:AAPL) in after hours. The FTSE is now below 7000 which was a support area near the lower line of a rising wedge. The S&P 500 is really struggling to go up, as time passes the odds of an alternate wave count have increased significantly. Time is important because according to the pattern the S&P is in a third wave up, this means the rally should accelerate but so far this is not happening. As I said US investors are probably not active ahead of the presidential election. In this case the US index will continue to trade sideways until the second week of November.
The FTSE is weak for a different reason, it seems UK investors are taking money off the table in anticipation of bad news next year, also because they have made some good gains since June. I suspect the rally in the FTSE ended at 7129.8 and we are now at the start of a long term decline.
Yet sentiment is still bullish, which is not consistent with a decline. But this could change, the BTI nearly turned down two days ago. But failure to break above yesterday's high and continued weakness in the S&P does not inspire confidence in a rally. The rally is probably over.
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Today I am pleased to report a series of good trades and why patience is paramount in order to succeed. My forecasts on FTSE 100 and EUR/USD have been spot on recently. Latest results on the swing trades from Better Trader Premium:
FTSE 100 December: +200 pts on 4th October and +56 pts on 11th October S&P 500 December: -10 pts on 4th October EUR/USD spot: +250 pts today Options: +103 pts on 11th October
So in total +599 pts so far this month.
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Profits from trading don't materialise regularly. Sometimes we can have a period where nothing happens for example we will win then lose, win,lose,win,lose ..that kind of thing. Then suddenly we will make 600 pts in a month.
That is the way trading goes. You have to be patient and you must replicate all the trades without exception in order to succeed.
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Sentiment turned bearish a few days ago and the stock market is expected to go down as a result but the S&P 500 is resilient. It’s possible a bottom is already in place in the S&P. The US economy is not firing on all cylinders but it is not slowing down either. That is a perfect environment for stocks, this is why I think the S&P will make a new high...read more
After last Friday strong rally, the FTSE closed down yesterday. It seems the rally is running out of steam. Same thing in the S&P 500, I was expecting a rally near 2070, but the highest level yesterday was 2055 and the index closed down.
Today the indexes are lower in pre-open, it would appear that the counter trend rallies are complete. Beside the wave count, stock markets have limited upside in the next four weeks mainly as a result of the uncertainty surrounding the referendum in June. Fear of Brexit will keep investors on the sidelines. This means, and as we move into June, the sellers will outnumber the buyers and chances are the stock market will move down.
Yesterday the Prime Minister warned of a DIY recession if Britain leaves Europe. Whether he is right or not, his comments will not re-assure investors. In addition talks of higher interest rates in the US will add more pressure on stock markets. Therefore there is a good chance the high at 6216 will remain intact.
This level is the top of wave 2 of a five-wave decline. From that level the FTSE declined below the 55-period moving average (on the 90-min chart). The index is now back above the 55-period moving average. In a bear trend a move above the 55-period moving average is a sell signal, so the decline should resume. Alternatively wave 2 is not yet complete and there will be another move up above 6216 before the decline resume. That is because wave 2 retraced less than 50% of wave 1, in general a second wave retraces 50% or more of the first wave.
Trading Strategist Thierry Laduguie has had great success trading the FTSE 100 and options. Our members are up 1644 pts or +164% in the last 13 months. "FTSE 100 and options are the best markets to trade" he says. To become a member subscribe to Better Trader