I expect sentiment to turn bullish because the 34-day BTI is oversold. When this indicator is oversold the FTSE will rally for two weeks or more. The rally started on 29 September, only six days ago, the index should continue to rally for another week or two.
Today’s rally was triggered by a sharp bullish reversal day on the S&P on Friday. The US nonfarm payrolls failed to meet expectations with only 142,000 jobs added and the market sold off on the news as you would expect. But the decline was short lived, investors realised that the weak job report would dampen the prospects of a rate hike, this explains the sudden change of direction.
But we’ve been there before, interest rates have been lowered to near zero, we were told this would be good for the economy. We were told that stimulus is good for the economy too, why in that case economic activity has stalled after a massive quantitative easing program and near zero interest rates?
Something is not working but people still continue to believe everything will be fine. The magic word has been stimulus, this word could well be the key to the current rally. China is talking about more stimulus, this together with the prospects of no rate hike this year is boosting stock markets today. You need to be bullish mood to buy this story, this is why I expect sentiment to turn bullish.
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