FTSE 100 Has Limited Downside Unless Trump Card is Shown

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The FTSE 100 broke below an important support line yesterday, it now looks as if the decline in the FTSE will accelerate. This is not confirmed by the S&P 500, the US index is still in an uptrend. We have a non confirmation between the FTSE and the S&P, the S&P has the potential to rally to new highs in the next month. When there is a conflict between the two indexes, one of the forecasts is wrong, I suspect the break lower in the FTSE is a bear trap.

We are now in a period where seasonal influence is positive, the traditional Santa Claus rally cannot be ignored and for this reason the market will probably rally in the last two months of the year. This means the FTSE has the potential to rally, in line with the S&P. But I must warn you, it won’t be plain sailing going forward, we have some major events that could derail the forecast starting with tonight US interest rate decision and next week US presidential election. Then in December the Fed could hike rates which would be negative for stocks.

So we need to be cautious in the short term, these important events can change the forecast. Will the Fed hike rates tonight? Always a possibility, I will be watching tonight at 18:00. If the economy continues to improve the hike will probably come in December. In any case people should be cautious tonight, we may get some nasty surprises.

 

Indicators on the 2-hour chart:

Elliott wave: bullish
Sentiment: neutral
MACD: bearish
DMI: bearish
RSI: neutral
M/A crossover: bearish

The BTI (sentiment indicator) turned down yesterday but the 34-day BTI is still rising, we have a non confirmation between the two indicators therefore sentiment is said to be neutral. The Elliott wave is probably and end of correction resembling a falling wedge in five waves. This means the rally will resume impulsively. The RSI is approaching oversold, a move below 30 is oversold. This confirms the end of correction. The 13-period moving average is below the 55-period moving average, this is normal set up when the market declines. The MACD and DMI will seldom be bullish at the end of a correction. In general the rally will start when the trend following indicators are bearish.

Thierry Laduguie is Trading Strategist at www.e-yield.com

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