FTSE 100 Forecast, Trading and Analysis

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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