FTSE 100 Forecast, Trading and Analysis

December 5th - Yesterday’s action in the S&P 500 was bearish, it’s possible yesterday’s high at 2665.2 marks the top. The tax bill was meant to boost stocks but the S&P closed down. We have a typical case of buy the rumour, sell the fact. Technology stocks were particularly vulnerable. When investors switch out of high beta stocks you know the rally is on its last leg.

 

As I said the new high is not significant because it does not signal the start of a long advance but rather the end. The pound has become unpredictable short term due to the Brexit news, one moment the pound rallies on news of a deal, next it goes down because there is no deal. Longer term the trend is down, but in the short term it could make a new high if Britain and the EU have a deal.

 

We are now near the end of wave 1. f the S&P has turned down and the pound declines I still think the FTSE will be dragged lower because the S&P has more influence on the FTSE than the pound. But the decline in the FTSE is nearing an end because the 34-day BTI is oversold. I expect a multi-week rally starting from lower levels, this will be the Santa Claus rally in the last two weeks of December.

 

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November 13th - October is one of the worst months but this year the FTSE was bullish in October. November however is a bullish month but the FTSE is falling this year, seasonal influence is positive so I expect a bounce in November. This bounce will happen after the current decline.

 

If the trend has turned down as I suspect, the decline will resume into December. This time last year the market was boosted by Trump’s victory in the US presidential election. This years the Trump’s factor is fading, after a turbulent year the president’s popularity is falling and Trump appears to have less influence on the stock market today. it seems the natural forces driving the markets are back and if my forecast is correct the president popularity will fall even further in line with the stock market.

 

This could revive the tension between the US and North Korea. The US is building its military arsenal in the Korean peninsula, and from past experience when US presidents lose popularity they often go to war to boost their ratings. A war between two countries with weapons of mass destruction would certainly have a negative impact on the stock market.

 

Today we see a sharp fall in GBP/USD, this is because prime minister May is losing support from members of the Conservative party, she may be forced to resign. I was expecting a rally to 1.3300 in GBP/USD because the pattern looks like a triangle.

But the high on Friday was below that level, if this move was wave c (circle) it’s not clear if wave c (circle) is complete. If the current pullback extends I will conclude that wave c (circle) is over and the pullback is wave d (circle). After wave d (circle) the pound should rally again to 1.3180 to complete wave e (circle), this move will complete wave 2 of a long term decline.

 

November 8th - Yesterday the FTSE behaved as expected by the wave count, the index rallied above the top of wave (iii) and below 7599 to complete wave (v), then it declined back to 7500. This wave count is bearish because when the FTSE rallies in five waves below the all-time high, there is a good chances the index will decline.

 

The strength of the S&P is about to change from strong to weak, the US index has completed its pattern and it should decline in line with the FTSE. We have a situation where both FTSE and S&P may have topped out at the same time.

 

The pound is in a consolidation pattern before the decline resumes. You will recall my long term view on GBP/USD is bearish, this is the only positive for the FTSE. I hope I am wrong but if I am right, the decline in the FTSE won’t go far because a falling pound supports the FTSE. One way to play this is to short GBP/USD as a hedge for the short on FTSE.


While I see lower prices in GBP/USD in the short term however, it’s not clear if the decline will resume now or from higher levels. There is a scenario where GBP/USD will rally to 1.3280 if the pattern is a triangle. But this is not high probability, the alternate scenario is an impulse wave down which means the decline will resume now.

 

In UK news the British Retail Consortium reported disappointing retail sales which weighed on retail stocks and this explains why the pound was weak yesterday. We follow sentiment and right now sentiment from the BTI is bearish. Bounce or no bounce the decline should resume.

 

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November 1st - After a strong rally in the first half of October, the UK index lost momentum in the second half. The move back to 7565 occurred on extreme optimism....continue reading

October 24th - The pattern is clear in the Dow Jones, the five wave pattern [1,2,3,4,5] is wave (5) of a larger bull market that is ending now. This is the final wave of the bull market that started in 2009. The rally since 2009 is in five waves [(1),(2),(3),(4),(5)] which means the next decline will be in proportion to the five-wave rally in time and price. The Dow Jones is near the start of a multi-year decline.

 

Based on this information the S&P 500 must be topping out as well. The pattern on the FTSE is nearly complete too, it would appear it has one more wave up to complete before the final top. As I said, sometimes you look at other markets that influence the FTSE and if they don’t confirm the FTSE rally you wonder how the FTSE will rally. For example yesterday the S&P pulled back sharply after hitting 2578. Does that mean the S&P has turned down? After all I expected a peak at 2585, yesterday high is close to that level, so there is a good chance the S&P has turned down.

 

I think the most important thing is the pattern on the FTSE, despite the behaviour of the S&P, if the pattern on FTSE is not complete there is no need to be short now simply because the S&P appears to have turned down. Before concluding that the rally in the FTSE is over we need to see the break of a key support for example a break below the previous low.

 

September 25th - The BTI was unchanged on Friday, sentiment is neutral. Friday’s strong rally coincided with the lower GBP/USD and the pound started to fall during Theresa May speech in Florence. With regard to Brexit nothing has changed after her speech, the pound is rebounding today.

 

Another potential market moving event was the German election at the weekend. As expected Angela Merkel won the election so no surprise this morning. And in North Korea the situation was quiet with no report hydrogen bomb test and no rising of tension. As a result today markets are more or less trading at the levels where they closed Friday.

 

As noted the pound is rebounding this morning, if the trend in GBP/USD has turned down this rebound should not happen. If the high recorded after last week FOMC statement is the top, and Friday’s rally to 1.3596 before Theresa May’s speech is wave ii (circle) of a five-wave decline, the decline should extend today because the current move is the third wave down. It is not normal to see a large bounce this morning unless the third wave is extending in five waves and today’s bounce is the second wave inside the third. Or may be wave ii (circle) is tracing out a triangle in which case the GBP/USD will move sideways in the next few days before the decline starts.

 

In any case the expected decline in GBP/USD will be positive for the FTSE and because the S&P is rallying, chances are the FTSE will go up in the short term.

September 15th - Members of the FTSE short term forecast (Better Trader Premium) were alerted to go short on Wednesday. The following morning I posted this report:

 

FTSE forecast

 

Today we closed the short for +169 pts. When you read the report you will understand why I did the trade. Elliott wave analysis gives us an edge, time and time again the unfolding waves give me important clues about the future. My forecasts and analysis will greatly increase the odds of success in trading the FTSE 100. You can chose swing trading, day trading or both. I recommend both, when you subscribe to the FTSE intraday you receive both intraday and swing trades alerts.

 
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September 13th - the FTSE is struggling to go up because the pound is surging. Yesterday’s stronger than expected consumer price index (CPI) pushed GBP/USD above the previous high and at one year high. This is creating headwinds for the FTSE. Yet GBP/USD has moved up in five waves, a pullback is due. The question is when will it come? I expect at any moment, a five-wave rally is followed by a correction and the target is 1.3150.

 

Today we have another important piece of news that will affect GBP/USD, we have UK average earnings index data at 9.30. Strong average earnings would push GBP/USD higher and the FTSE lower.


I expected a pullback in the FTSE based on the top wave count and I also expect a decline in the S&P. The thing is, if the S&P is tracing out wave 4 as I suspect, the decline in the S&P will be significant. As a result I am not sure the decline in the FTSE will end above 7322.4. The potential decline in the S&P is 2.5%-3%, such a move would probably drag the FTSE below 7300. Therefore we have an alternate FTSE 100 forecast to consider:


What is clear is that since the top at 7600, each rally has been corrective (not impulsive) which means the main trend is down. Wave 2 is not an impulse wave and the rally since 11 August is not impulsive. What is also clear is that declines are not impulsive either, this type of pattern occurs in an ending diagonal or falling wedge, so it’s possible we are in a large falling wedge. We know that the first wave of a bear market can take the shape of a falling wedge, here the first wave is the sequence [1,2,3,4,5] which is a falling wedge. In this pattern we are in the midst of wave 3 down, this move will end near 7200. If my wave count on the S&P is correct, a decline to 7200 in the FTSE would fit well with a decline to 2430 in the S&P. 


At the moment and because of the alternate wave count which is a strong possibility, it is not recommended to go long. You will note that in both wave counts the next move is down so it is recommended to go short above 7400.

 

September 12th - Sentiment is bullish, the FTSE is completing the final wave of a counter trend rally. It’s normal for sentiment to turn bullish when the counter trend rally is large in time or magnitude. The main development yesterday was the rally near the all time high in the S&P. This move cancels the triangle pattern I have been discussing. Instead of a triangle we could be in a flat pattern which is bearish in the short term. 

 

At the same time the FTSE is pushing higher and near 7430. We now have two potential scenarios on the FTSE. The rally has been helped by the less severe than anticipated hurricane Irma, yet it is surprising to see the S&P near the all time high without seeing a deeper pullback.

 

Considering that the UN has imposed new sanctions on North Korea and Kim Jong Un said North Korea would retaliate, we can expect investors to be cautious and I am not sure stock markets will go much higher in the short term. This is also supported by high valuations, stocks in the US are overvalued on various measures. In this situation when the market makes a new all-time high, people will be quick to take profits. Basically long term investors become more or less short term traders.


Yet there is a scenario where the FTSE could rally above 7500 to complete the final wave of the rally. 

 

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