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FTSE 100 Trading: Reduce Long Exposure

The BTI was unchanged yesterday. The strength of the rally has boosted the bullish mood which is what you would expect after a long rally. The more the market rallies the more bullish investors become, this is why, when we see a bearish divergence (declining BTI, rising FTSE), the FTSE must decline soon otherwise if it does not, sentiment will turn bullish and the rally will extend.

This is where we are now, the rally has lasted too long and the BTI is no longer declining but it has yet to turn up. The 34-day BTI is still declining so before we turn bullish both BTI and 34-day BTI must be rising. While we are waiting for the indicators to turn bullish, we must not be fooled by the rally. The rally this month is not powerful because the fundamental data is improving, it is powerful because there are too many people doing the same thing i.e. buying at the same time.

As I said, we are in a period of first degree extreme in bullish sentiment. During this period the level of bulls is at record high so when the market declines sharply as it did in January, a small percentage will buy near the low but the majority will buy in the middle of the rally or near the end. These buyers are not smart or clever they are simply herding. In the meantime they have the power to push the market back to previous highs in a short period of time.

In a first degree extreme in bullish sentiment a rally that starts from oversold levels can be powerful. In this situation it is recommended to go short from high levels and not too early in the move. Whether or not sentiment turns bullish, the rally has been driven by the herd of bulls, once they are all invested we should see a decline.

I believe that 90% of bulls are invested at this stage of the rally which appears to be a counter trend move in three waves [(a),(b),(c)]. 

The bottom line is that there is nothing fundamentally sound to justify this rally, therefore I am confident a sell off is around the corner.

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FTSE 100: Which Way Today?

The FTSE 100 cash price hit a high of 6596 last Friday. Sentiment has turned bullish again, the BTI turned up on Friday. This indicator is now in line with the 34-day BTI. It is possible to have bullish sentiment during a counter trend rally, when this happens the rally can last longer than previously thought.

We don't need to look at the indicators to see that sentiment was bullish last week. Another disappointing job report lead to a strong rally in the S&P, the FTSE closed up too but is lagging the S&P. Normally a weak report should have produced a sell off. As I said before when sentiment is bullish investors will ignore bad news, for example the problems that caused the sell off in January are still there yet the market is now rallying. We can expect the FTSE to rally further but in the next few days a pull back is the more likely scenario. There are two possible wave counts in the near term:

The move up should end with a divergence on the MACD histogram. A divergence will exist when prices are higher but the MACD histogram is lower than 6. So far there is no divergence to report, so a move up later could end near resistance at 6625 and produce the divergence.

Alternatively the divergence could be delayed,  in this case the FTSE will first a decline to key support at 6514, then rally to the 6620 area. To receive my latest view on the intraday/short term direction of the FTSE 100 click here.

FTSE 100 Trading: +240 pts This Week

e-Yield's FTSE Intraday Service had a good week. Watch the video:

 

To subscribe to the FTSE Intraday service click here

e-Yield Sentiment Indicator

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This indicator is used to forecast the short term direction of the FTSE 100 and S&P 500.

e-Yield Sentiment Indicator

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Please login or register

This indicator is used to forecast the short term direction of the FTSE 100 and S&P 500.

Which Way For the FTSE 100?

The FTSE was slow to move yesterday due to the bank holiday in the US. When Wall Street is closed the FTSE lacks direction. In the absence of major news the market is driven by positive sentiment, so today the rally continues.

 

 

On the long term chart the FTSE is approaching a resistance area above 6900. The question is how will the index get there. Will it be down to 6700 then up to 6920 or straight to 6920?

There are two possible scenarios. An immediate decline followed by a rally is supported by a near overbought Top 20 Differential which is a timing indicator. Any decline should be seen as an opportunity to go long, the uptrend remains intact and prices are supported by bullish sentiment.

The alternate scenario is a rally to 6920 in the short term, that's because the pull back in the first half of January was not deep, the FTSE retraced less than 38% of the previous advance. This move is unlikely to be a B wave, it is more likely to be a fourth wave in which case the current rally is a fifth wave.

Find out what Thierry Laduguie thinks right now

Patience is the Key to Successful Trading

By Thierry Laduguie

In the book Market Wizards, Interviews with Top Traders, the author writes "many of the traders stressed the importance of having the patience to wait for the right trading opportunity to present itself".

I completely agree with the above statement and cannot emphasis enough its importance. I have been trading for many years and have a wealth of product experience, so I can tell you with the utmost confidence that next to discipline -patience is one of the most important factors that will lead to trading success. Why? Because there are many opportunities everyday but only a few trades have a high probability of success. A trader's task is to identify the high probability trades and be patient until the opportunities present themselves. These trades are the ones that will lead a trader to success and profits.

If you're struggling to find those high probability trades, I can help. My trading strategy focuses on market timing and has been sharpened over time to offer a consistent trading advantage. From the moment I published the following article in May last year I knew I was on the right track:
 
http://uk.advfn.com/newspaper/thierry-laduguie/18849/caution-should-always-be-the-rule

In May 2013 the stock market had gone too far too fast. So my analysis was spot on and the high of 6875 on the FTSE still remains intact today. At the base of any good trading service is a good forecast. That's what I provide to my members.

I constantly review and improve the service with new indicators and my results speak for themselves. From July 2013 to January my members made +861 points based on my forecasts. Here are the results by type of trade:

Intraday trades: +359 pts
Swing trades: +240 pts
Options trades: +262 pts

The good news:

You too can benefit from my unique trading approach and strategy by becoming a member of my FTSE 100 forecast service. To subscribe and receive the first month half price, please click the following link:

http://www.e-yield.com/Trial%20FTSE%20intraday


The bad news:

The price of my forecasting service is rising to £57 next week (by email). However, if you subscribe before Sunday 19th January you will pay £49 each month, that's a saving of £8 per month.    

Beat the price rise, subscribe before Sunday 19th January and you will pay £49 per month (by email) instead of £57. Click here to get started.

If you wish to receive alerts by SMS + email the price is £69. Click here to get started.
 
Hurry up, this offer ends Sunday 19th January!

FTSE 100 Trading: Sentiment Analysis Points to Further Gains

Yesterday Michael Hewson of CMC Markets wrote:

“Combine that (net retail sales Q4 number fell back to 1.1%) with hawkish comments from new FOMC voting members Charles Plosser and Richard Fisher with respect to further cuts to monetary stimulus and fairly indifferent earnings releases from JP Morgan Chase and Wells Fargo and you wonder what has driven the moves of the last couple of days”

The move of course was up, the FTSE 100 is now trading near 6,800, a levels last seen in October 2013.

Many people do not look at sentiment in their analysis, that’s why they are puzzled when the stock market goes up on bad news.

If you wonder what has driven the moves of the last couple of days, check sentiment. The truth is, a rally on bad news is the result of an increase in bullish sentiment. In my view the rally of the last few days has been driven by bullish sentiment and I can show you this on the chart below. One of my sentiment indicators (34-day BTI) recorded an extreme in bearish sentiment of second degree on 20th December when the indicator fell below -400:

 

When this indicator falls below -400 the FTSE 100 is about to rally so in this situation traders should close short positions and prepare to go long. The FTSE rallied in the last ten days of December, then prices moved sideways during the first half of January. In the meantime sentiment turned bullish on 27th December as recorded by my indicator, and has remained bullish ever since.

Therefore I am not surprised to see the FTSE 100 going up on the back of disappointing news. Sentiment analysis is the most powerful form of analysis to predict the short term direction of the FTSE 100 index. The next target is 6,850.

To receive regular research on the FTSE 100 including trading alerts click here

Stock Market Bullish/Bearish Factors

Bullish factors

Bullish e-Yield Sentiment Indicator (ESI)

Declining bond yields

Earnings season

Bullish technical pattern

Bearish factors

Extended Bull market

S&P 500 well above 200-day moving average

First degree extreme in bullish sentiment

Fed tapering asset purchases

Slowdown in emerging markets

Put/Call Ratio 10 day average at an extreme

Margin debt at record high

Percentage of bearish advisor at record low

Our view

There is nothing surprising in the current move down, it's a second wave and second waves can retrace 100% of the first wave. The first wave started from 6679, so in theory the second wave  could go down to a maximum of 6679. This is a maximum retracement, in general the retracement is more likely to end between the 38.2% and 78.6% retracement of the first wave. I would say the most obvious support is (subscribers only) from where the FTSE 100 should rally.

Alternatively join Thierry's FTSE trading service to find out support/resistance levels

e-Yield Sentiment Indicator

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This indicator is used to forecast the short term direction of the FTSE 100 and S&P 500.