Yesterday I sent a quick message to my clients on the e-Yield app, "FTSE on the 200-day moving average, bullish"
The 200-day moving average is a natural support area, but that was not the only reason that prompted me to issue a bullish view. There were other factors that I discuss below. I also recommended a long on S&P 500 for similar reasons.
The e-Yield app is an instant messaging app, my clients use it to stay in constant contact with me 24h/7days. When I see something I alert them.
Elliott wave pattern
The first thing bullish I noticed was the Elliott wave pattern on the 60-min chart, The decline from 7380 in the FTSE was counter trend because this pattern contains overlapping waves.
This pattern is a downward double zigzag [(w),(x),(y)]. This pattern appears when the decline occurs in an uptrend (pullback). When this pattern is complete and below the 200-day moving average the odds of a rally are high.
Sentiment
Market sentiment as indicated by the BTI is bullish. This indicator turned bullish on September 10th. In general when when this indicator is bullish the stock market trend is up.
Gold
I believe gold should go down because the previous rally is in five waves. The initial decline to 1483 was the first leg of the decline. The rally to 1535 on Tuesday is the second leg. The current decline is the third leg. As gold and the stock market have been moving in the opposite direction recently, and gold was preparing to turn down to complete the third leg, this forecast on gold supported a stock market rally. Then I needed to confirm my forecast on the FTSE with the forecast on the 10Y bond yield.
US bond yields
You need to understand the correlation between gold and bond yields, they move in the opposite direction. If I believe that yields are going to rise then gold is likely to decline. I think yields will rise because what we are seeing is a counter trend rally in three waves [(a),(b),(c)] in yields. The latest decline is wave (b), the next move is wave (c) up. This rally in yields will push gold down and the stock market up.
But this rally in FTSE and S&P has limited upside for different reasons. We are near the end of the rally, not at the start. Furthermore gold is in the third leg down and yield in the third wave up which suggests these moves in gold and yields won't last.
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