September 20th - The FTSE 100 moved above its trading range and above the 55-period moving average on the 90-min chart. In a downtrend a move above the 55-period moving average is bearish (assuming the decline is not yet in five waves). At the end of five waves down it’s different, the 55-period moving average won’t be resistance.
Today Rio Tinto issues details of its $3.2 billion share buyback, another bluechip tries to improve its share price. You have probably noticed an increase in share buybacks in recent months, this happen when CEOs think there is little growth prospects. If company earnings do not grow the share price won’t go up. To make the share price go up companies buyback their shares, this operation reduces the number of shares traded and boosts earnings per share which in turn reduces the price / earnings ratio. The bottom line is shares become cheaper and the share price goes up to fair valuation.
If too many companies buy their own shares the stock market goes up. An increase in share buybacks confirms my view that earnings have peaked, we are at the end of the cycle. The trade war won’t help earnings, higher interest rates won’t help, rising inflation won’t help, emerging market troubles won’t help…Inflation is starting to rise strongly, yesterday’s UK CPI was much higher than anticipated. Inflation rose to an annual rate of 2.7% the highest in the last six months. In the US inflation rose to 2.9% in July, and 2.7% in August. High inflation means companies input costs are higher and margins are lower unless they put their prices up. In this environment it is hard to raise prices, rising prices would push inflation much higher.
This explains why upside in the stock market is limited, the FTSE will not return to 7900, the S&P may push higher in the short term but the long term is negative. The S&P will drop sharply when people lose faith in Trump. At the moment I believe people are still buying because they believe Trump will make America great again. If Trump fails the stock market will go down. That is what the Elliott wave model predicts, Trump will fail.
The President wants a low dollar and low oil prices, which is not compatible. When the dollar falls oil producing countries will hike the oil price otherwise their revenues would fall. And we know what happened to Venezuela, precisely a fall in oil revenues prompted a collapse in the economy. The result was a currency devaluation and now hyperinflation.
The president does not want inflation but the new tariffs will push inflation up. Faced with margin pressures, US companies are more likely to adjust their prices to foreign imports so that earnings don't suffer, This means prices will go up.
The high oil price will push inflation up, this is well known fact. And perhaps the irony is that the tax reform will push inflation up too. Trump is hoping that companies will repatriate $4 trillion profits stockpiled overseas. So far about $500 billion have been repatriated, this money will increase the money supply. Too much money is bad for currencies and good for gold. You can imagine one of the reasons inflation is rising is the massive expansion in the money supply in the last twenty years. Add another $4 trillion and inflation will probably accelerate. A rise in the inflation rate is expected, this is why bond yields are rising to compensate bond holders.
Now if China starts dumping US treasury bonds (they have started to reduce their holding) the dollar will continue to decline, yields and inflation will rise. Trump has a big problem.
September 5th - I have been saying in my daily reports that the FTSE 100 leads the way. This means when the S&P 500 makes new highs but the FTSE makes new lows, the index we should rely on for direction is the FTSE 100.
This is because the FTSE 100, with its large proportion of banks, mining and oil stocks, is a good indicator of the global economy. When the global economy slows the FTSE 100 will be the first
index to anticipate the slowdown.
Despite what people say the S&P 500 will struggle to rally in the long term. These new highs (if any) won't signal the start of a large rally. You can see this happening right now. This is because there is no fuel left, the manipulations are done, there is nothing else the Fed or Trump can do. This market is just rising on hope, hope that the Fed and Trump can stimulate the market.
This kind of market is characterised by slow moves up (and limited in terms of points gained) accompanied by sharp declines like the one we saw in January. I expect this behaviour to persist this year. But right now the FTSE 100 is approaching an important bottom.
We will go long when we are ready, meanwhile members of the FTSE short term forecast are enjoying big gains, +710 pts on closed trades and +160 pts on the current open trade, all achieved in the last three months.
August 31st - how to use the trade signals from the FTSE intraday and FTSE short term forecast services
August 17th - The 34-day BTI is oversold below -400. This poses a dilemma because when the indicator is below -400 the FTSE is near major bottom. If I look at the S&P it is the opposite situation, the S&P is at the start of a large decline. How can this be possible? It is not possible for the FTSE to rally while the S&P is declining, plus GBP/USD is expected to rally. A rally in GBP/USD accompanied by a decline in the S&P is very bearish for the FTSE. May be the 34-day BTI will continues to decline and the FTSE will find a bottom at lower level.
Even this scenario is not compatible with the position of the S&P. Why would the FTSE decline stop near 7350 when the S&P is in wave (3) down? This wave down will be more powerful than the decline in February because it is a third wave. Based on the position of the S&P and assuming a rally in GBP/USD, the target for the FTSE is near 6500. This level could be reached within four or five months. In the meantime the FTSE could rally, the pattern in the short term looks bullish. But it is not clear if the FTSE can rally past 7900. Given the weakness of the FTSE relative to S&P and if we assume the S&P has turned down, you will agree that the probability of a rally above 7900 is nil.
July 19th - Once again we have had a terrific run of winning trades since the end of May. The FTSE intraday service made 367 pts and the FTSE swing trades made 372
pts. If you trade both you would have made 739 pts in less than two months. This follows a bad run in May. As you can see these bad runs are temporary, they not really bad
because they are followed by good runs and the number of points gained during the good runs exceed the number of points lost during the bad runs.
Unfortunately it is impossible to know if the next few months will make as many points as the last two months. This is why I always tell people to be patient and not to bet too much in case we have a series of losses. As always many people don't have the discipline to sit tight during adverse periods. People will leave the service after a bad run and they will miss all the profits in the following period. People tend to quit at the wrong time which is a pity, no wonder they are not profitable.
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July 13th - The FTSE is rallying back to the 7700 area in pre-open following a rally on Wall street. This is an important resistance area because if the FTSE is in a triangle the decline will resume. The top of wave c (circle) is at 7715, the FTSE cannot exceed that level or the wave count is wrong. So if the FTSE rallies near that level and this rally is wave e (circle) it means wave 2 is complete and the FTSE will decline to complete wave 3. In this scenario it is not clear if wave d (circle) is complete or not, normally wave d (circle) should be in three waves [(a),(b),(c)] like wave c (circle), here wave d (circle) appears to be in one wave.
This is why I thought may be the FTSE will decline below 7578 to complete wave d (circle) in three waves. But with the FTSE trading near the top of the range it looks like wave d (circle) ended at 7578 and we are now near the end of wave e (circle).
What is clear is that there is a conflict between the 34-day BTI, the S&P and the FTSE. The 34-day BTI currently at -337 is nearly oversold. Normally the 34-day becomes oversold prior to a rally, well if the next move is down, it does not make sense to have the 34-day BTI near oversold. And the S&P is in a rally that is not complete. So right now we have many conflicting signals which means the forecast is not high probability, it is better to sit on the sidelines until there is more clarity in the wave count and the indicators.
A move above 7715 means the rally will extend but upside is limited because the S&P is near a top. Basically there is only 1% upside in the S&P, how can the FTSE rally to 8000 when the S&P is near a top and GBP/USD is expected to rally?
July 5th - The FTSE was trading sideways in a tight range yesterday as US markets were closed. The real action will resume today, in the meantime the FTSE is still above 7550. Sentiment is bearish but the FTSE is not falling below 7550. May be it will break below that level later, in the next few days but time is running out because the 34-day BTI is approaching oversold.
The 34-day BTI is currently at -138, a drop below -400 is oversold and in this situation the FTSE is near a bottom. There is still time to reach oversold, it could take a week or more so in theory the FTSE could drop to 7400 within a week but it does not feel like current wave count is right because we are in the midst of wave iii (circle) inside wave 1 and the indicator is nearly oversold. Normally the indicator would become oversold near the end of wave 1, for example in wave (v) inside wave 1.
Time is important, if the market is expected to decline and it takes too long for the decline to unfold sometimes it is a sign the market will rally. The decline should happen immediately because it’s a third of a third. The longer the FTSE goes sideways the greater the chances of an alternate wave count. If there is an alternate wave count I don’t know what it is. What is clear is the decline from the high in May is overlapping like a falling wedge, in the alternate wave count this would be a corrective wave in the uptrend like a “B” wave on the daily chart.
You will recall that the rally in April-May is not a clear three-leg [A,B,C] rally which is the structure of wave (5). The larger pattern is an ending diagonal [(1),(2),(3),(4),(5)] and wave (5) should be in three waves [A,B,C]. In May I assumed that wave B was distorted by the news, there is a way to label the rally to 7903 in three waves and wave B is tiny. If the current decline is wave B the FTSE will rally above 7903 to complete wave C of (5). I don’t think this will happen because the S&P has turned down, this alternate wave count is low probability. It could happen only if the S&P rallies to new highs, and this is unlikely.
If my forecast on GBP/USD is correct (a rally) the above alternate wave count is even less likely to materialise. Let’s see how the dollar will behave tonight after the FOMC statement, if the statement refers to a weakening economy the dollar will decline and GBP/USD will rally. The latest US GDP data was weak, I think the Fed knows the economy is going down, at some point they will stop raising rates and the dollar will fall. Today I expect the S&P and the FTSE to rebound before the FOMC announcement.
June 27th - I always thought the rally in the Shanghai composite index from 2016 to 2018 was counter trend. The sell off in 2015 was caused by the devaluation of the Yuan, this move was the first wave of a larger correction. The rally ending in 2018 was the second wave, we are now in the third wave down and guess what? The Yuan is falling again. The Yuan is falling on trade concerns and a belief that China will devalue its currency to fight Trump's tariffs. If the Yuan continues to fall, stock markets around the world will fall further.
I correctly predicted this move and the decline in the FTSE 100 since May. My forecast was based on two powerful indicators, the 34-day BTI and e-Yield sentiment indicator. The 34-day BTI became overbought on 14 May, when overbought this indicator warns of a multi-week/month decline. Then sentiment turned bearish (declining BTI) on 8 June, this confirmed the position of the 34-day BTI.
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June 20th - The FTSE broke below the 55-period moving average, this average is now acting as a resistance. While the main focus of the trade tensions has been on the US stock market, the Chinese stock market is going down fast due to worries a trade war between China and the US will hit Chinese firms.
The Shanghai composite index broke a key support and is now trading at a near two-year low. I believe the sell off in 2015-2016 was the first leg of the correction, the rally from 2016 to 2018 was the second leg, we are now in the third leg down. The Chinese stock market could fall another 20-30% before this third wave ends.
So it would appear Trump’s strategy is to weaken China through a trade war. Trump believes China has more to lose than the US. Of course China is a big country with large resources and a large investment portfolio denominated in US dollar, mostly US treasury bonds. China could hurt the US by selling these Tbonds, China has the power to move bond yields up and the dollar down by selling massive amount of Tbonds. You can imagine how the stock market will react if bond yields surge (stocks will go down). You can also imagine why a trade war with China would get messy and this would prompt a sell off in the stock market. If the dollar goes down oil and commodity prices will spike up, inflation will accelerate, stocks will go down.
A sell off in stocks is what we expect, whether it is caused by a trade war or something else. I believe the dollar is near the top of its counter trend rally, in the next few days the dollar will turn down to start a long term decline. This will help GBP/USD and gold rally. The FTSE trend will turn down.
May 31st - In the last week we have seen softer economic data while at the same time inflation is on the rise on a global scale. Today France and the EU released stronger than expected consumer price index (CPI).
In the US the latest data on GDP and employment was lower than expected. The stagflation scenario is on track and this is before a full blown crisis erupts in Italy, which would spread to the rest of the world.
Luckily sentiment is positive, this is why investors are not focusing on the risks. In the short term the rally could extend. I recommend you subscribe to my reports for regular updates, I give long term and short term forecasts, if you are a short term trader my reports will help you navigate the markets with the odds in your favour.
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May 24th - Yesterday we noticed something different about the FTSE, GBP/USD was sharply down but the FTSE was falling too. I guess the natural forces were at work, the market cannot rise for ever, at some stage even good news will fail to rally the market.
We need to think in terms of valuations, if the market goes up too far stocks become expensive and the market will go down to re-adjust. You can see the surge in mining and oil stocks over the last couple of months, yesterday these stocks were sharply down. Mining and oil stocks were leading the advance, now they are leading the decline because they are overbought. Elephants don’t galop, when you see a company like BP rallying 26% in the last two months you know we are near the top.
As noted the pound was down yesterday, we continue to see low inflation in the UK, the CPI number was below estimates. But yesterday the focus was on the FOMC statement, in the statement Fed officials signalled they are set to raise interest rates at their meeting in June. That was expected. What is not expected is cutting interest rates and it seems that if the economy does not strengthen the cycle of rising interest rates will come to an abrupt end. Fed officials are less confident the economy will strengthen and we know why, we have seen weak numbers recently. This is why they did not say whether they would hike one or two more times this year following the June hike. This was interpreted as dovish and the dollar, which had been surging prior to the announcement, pulled back.
Indeed, I think the Fed will not hike anymore after the June hike, by that time it will become clear that the combination of slow growth and rising inflation will take its toll on the economy and the Fed will have no choice but to stop hiking rates. The Fed is not concerned by rising inflation but that would be expected, the central bank does not want to disrupt financial markets, they know rising inflation is a problem but they won’t admit it.
Going forward and based on my scenario we can expect the dollar to fall and GBP/USD to rally. Today we have UK retail sales at 9.30, last time the number was well below forecast, will the number be in line or higher this time? This would help GBP/USD rally. The UK economy and in particular the retail sector is struggling, we can’t rule out another weak number today. But GBP/USD has completed five waves down, if the low 1.3305 is not the bottom, we are not far away from a bottom.
There are two potential scenarios on FTSE, the first one is shown on the chart above. The second scenario is a decline to the 7400 area followed by a rally to new highs.
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May 16th - We continue to see weak data in the UK and rising inflation in the US, this combination is bearish for GBP/USD. GBP/USD made a new low and this explains why the FTSE is not moving down yet. Yesterday’s weaker than expected UK average earnings index is also a sign of low inflation in the UK. But this will change as oil prices make multi-year highs. The pound is facing headwinds on two fronts, weak economy and strong dollar. The dollar is rising because inflation is expected to rise, this means US interest rates will rise which is positive for the dollar.
But there is another problem for the US economy which is the threat of stagflation. We have seen a deterioration in the US economic numbers while inflation is rising, the combination of low growth and high inflation is called stagflation which is bearish for the stock market. Yesterday the S&P fell sharply after the release of the latest US retail sales data. The number was weaker than expected, I said that any weakness in the US economy will be accompanied by a sell off in the stock market because at the same time inflation is rising. Yesterday bond yields made a new high, the rise in bond yields is associated with rising inflation. Right now there is no sign inflation will cool, and no sign the US economy will strengthen, therefore I really believe the S&P has turned down.
If the S&P has turned down the FTSE should go down too, the only problem with the FTSE is the bearish influence from the S&P is offset by the bullish influence from the declining GBP/USD, this is why the FTSE is not moving. I suspect GBP/USD will continue to decline because the UK numbers are not going to get better in the short term. Unless we see rising inflation in the UK. Also because the dollar index does not appear to have completed its rally. I think the dollar index is not far away from a top, may be it will peak early next week. This means GBP/USD will probably fall to 1.3400 and the rally will start next week. On the chart it looks like we are in the fourth wave and the next decline will be the fifth wave to 1.3400. Therefore the real decline in the FTSE will probably start next week when the pound rallies.
Longer term rising inflation is bearish for the dollar. A bit of inflation is good for the dollar but too much inflation is bearish for the dollar as the dollar will lose purchasing power. When investors figure this out the dollar will collapse, the pound will soar and FTSE will collapse. This should happen when bond yields rise above 4%.