Last week I said that the FTSE 100 was leading the way down after peaking at 6237. Very often after a long rally, we see the FTSE 100 underperform the S&P 500. Such a behaviour is associated with a market that is losing strength. The FTSE peaked on 18 March, the S&P peaked at 2056.5 on 22 March. It would appear that the S&P has turned down to join the FTSE in the next decline.
The rally from the lows in February has been intense for a counter trend rally, this kind of move is usually seen in bull markets. No wonder why so many people are now wondering if we are still in a bull market. The reason why stocks have surged is because the ECB and the People Bank of China came to the rescue and commodity prices have rebounded. Of course these moves are counter trends, if you look at a weekly chart of oil, metals and mining stocks the trends are down.
Furthermore the blue chips are not responding to the rally, they are lagging the FTSE which is not what we normally see in a bull market. In a bull market the blue chips lead the way higher and after a strong rally they will be overbought. Here they are not overbought, many of the top twenty shares by market capitalisation are lagging the FTSE. Shares like Barclays, BT, HSBC, Lloyds Banking, Sabmiller, Astrazeneca are weak, therefore the rally in the FTSE is more likely to be counter trend.
This counter trend rally is wave 2 and it ended 6237. The next move is wave 3 in five waves [i,ii,iii,iv,v (circle)] and we are right at the start of this long decline. The first wave down is wave i (circle) and this move should terminate near 5550. Today the index is bouncing back as the S&P is still above 2040. The US markets must decline otherwise without the help of the S&P the FTSE will struggle to go down. Based on the wave count the S&P should decline this afternoon, this means the FTSE should break below last week low  later today.
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