November 6th - The rally has been driven by trade optimism and a belief the economy is on the mend.
Last Friday we saw a good nonfarm payrolls report and yesterday a better than expected ISM non-manufacturing PMI. When investors are bearish about the economy and the data improves, they will rush
to buy dollar, stocks and sell bonds and gold. Not
surprisingly gold got clobbered yesterday and yields surged (declining bonds), the dollar rallied too. As the trend in
the dollar is down, I still believe this rally is a fourth wave but I could be wrong. I will monitor this bounce in the
dollar, if it is a fourth wave it will end soon. This means gold is near a low. The important question is, will economic
activity improve? A set of data does not make a trend, it is too early to say the economy will get better.
We are now near the end of wave (b), if we zoom in on wave (b) on the 120min chart, this wave consists of many
overlapping waves as you would expect to see in a counter trend. Rallies are in three waves [a,b,c], we are now in
the final zigzag [a,b,c]. Wave a ended at 7403, the current pullback is wave b, this move should end near 7340. The
next move is wave c up and the target is 7430. This is the most likely scenario based on the pattern but it is not high
probability because not confirmed by the S&P. If the S&P has turned down, the FTSE will struggle to rally
to 7430. Unless it rallies today before the S&P opens at 2.30. Whether or not the FTSE rallies to 7430 before topping out
remains to be seen, the next move is wave (c) down. This will be a multi-week decline.
October 29th - When the stock market prices in good news be cautious
The rally in the FTSE 100 extended to 7347 yesterday, the index was strong probably because the S&P 500 was at new all-time high. The FTSE of course is well below its all-time high, it is lagging the S&P. I always say the FTSE is real stock market, it is the leading index, based on the FTSE the S&P should not be trading at new highs.
What will happen sometime in the next few weeks is that the S&P will collapse to catch up with the FTSE. The S&P is artificially boosted by the Fed and Trump. When the index prices in good news and the news does not materialise or some bad news emerges, the index will experience a set back.
You can see at the moment the stock market is resilient because people hope some good news will come out after tomorrow’s FOMC meeting and from the US-China trade talks. Trump said he expected to sign a significant part of a trade deal with China.
Very often you see a strong market ahead of the FOMC meeting then markets go down after the meeting either because the news was priced in or the Fed disappoints investors. Therefore it is possible the markets will remain at these levels until tomorrow night. But the next major move is down.
September 18th - Stock markets struggle for direction
One thing that could push the FTSE 100 higher is tonight US interest rate decision and the accompanying FOMC statement. As always this event can move markets sharply, and we can see the S&P 500 is not going down at the moment, probably because investors expect some good news tonight. The truth is nobody knows if tonight statement will be bullish or bearish. What we know is that the Fed is expected to cut rate by 25 bps. A bigger cut and/or talk of re-starting QE would be bullish for markets.
I mention QE because that is coming, the ECB has already restarted QE, I am sure the Fed will announce QE but I don’t know when. In fact the Fed has already re-started QE but it has not made it public. I hear that the Fed balance sheet is expanding again, the Fed has been buying Treasury bonds. That is QE. And yesterday there was a large rise in short term borrowing costs due to a lack of liquidity. This is the rate at which banks lend overnight. This is alarming because a lack of liquidity can lead to another banking crisis. But of course markets are not alarmed because the Fed intervened with new money to relieve the liquidity shortage. That is QE too. So the truth is the Fed is doing QE on the quiet. This is negative for the dollar and positive for gold. However gold is also influenced by US bond yields and I believe the rebound in bond yields is not over, this means gold should decline in the short term. Gold will rally later when yields drop again and the dollar goes down. I believe the dollar will fall and GBP/USD will strengthen which is a bearish development for the FTSE.
Yet we have the FOMC statement tonight, anything can happen. A rally to 7400 in the FTSE is possible. The next move is down, in line with the S&P.
August 31st - how to use the trade signals from the FTSE intraday and FTSE short term forecast services