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On Friday I questioned the validity of a third wave down as the 34-day BTI was near a bottom. Today’s strong open would appear to support the alternate scenario, the FTSE is not at the start of the next major decline, instead the index is in the midst of an advance. Markets can change direction temporarily on the news and the news today is to do with the Fed. The expected candidate to replace Ben Bernanke as Fed Chairman, Larry Summers, ruled himself out of the race. In addition tension in Syria is receding so investors are in bullish mood today.
FTSE 100 Daily chart
Based on the position of the 34-day BTI I believe that the rally will extend above the previous high set on 2nd August [6696]. However, there are still some potentials market moving events ahead like Wednesday’s FOMC meeting and rising bond yields (see below).
When the 34-day BTI is below -400, the FTSE is near a bottom. It is conceivable that the bottom was on 22 August and the current rally will extend. The 34-day BTI has turned up.
At the moment the other component of the ESI, the BTI, is down but the 34-day BTI is up, when the two indicators are in opposite direction we should be neutral until the two confirm each other.
If the BTI turns up, and I will alert you when it does, we can increase our long exposure. I think the FTSE is tracing out an upward zigzag for wave 2. Wave 2 should end near 6800 sometime this week or next week. Thereafter and going into October I expect another sell off.
Thierry Laduguie is Market Strategist at www.bettertrader.co.uk
Market moving events this week (UK time):
Today
US Industrial production at 14:15
Tomorrow
Germany ZEW Survey at 10:00
Wednesday
UK BoE MPC minutes at 09:30
US Housing Starts at 13:30
US FOMC meeting announcement at 19:00
Thursday
UK Retail Sales at 09:30
US Jobless Claims at 13:30
US Existing Home Sales at 15:00
US Philadelphia Fed Survey at 15:00
