Sentiment is bullish again after yesterday disappointing news, the FTSE closed up. Most of yesterday’s economic numbers were weak. Chinese HSBC manufacturing PMI, German manufacturing PMI, German services PMI, EU manufacturing and services PMIs, UK retail sales, US jobless claims, US new home sales all worse than expected.
You know something is wrong when the market rally on bad news, the market can rally on bad news but only for a limited period of time. Sooner or later the market will catch up with reality, that’s when it will crash. I think this year there is a high probability the market will crash, the difficult bit is knowing what will kick start the decline. In general bear markets start when they are least expected. Everything is rosy then suddenly the market turns down. That’s my preferred scenario, stock markets will turn down after five waves up. Also market moving events tend to occur at the end of five waves up, something spectacular is about to happen. Will it be Greece leaving the euro or the bursting of China’s stock market bubble?
The declining euro is also a concern, the advantage of a weak euro is that European manufacturers become more competitive, so in theory manufacturing activity in Europe should pick up. This is not what we are seeing. I think manufacturing is weak because of a global slowdown, even at lower prices demand is weak. The FTSE will rally at the open, this move is expected to hit the 7070-7080 area. The pattern is terminal, it will end soon.
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