Stock markets bounced back on Friday, investors are getting back into the market after last week pull back. We are in a period of first degree in bullish sentiment, this period is characterised by low volatility and low fear. In this situation investors are complacent and they will not hesitate to buy early (early in the decline) so declines are short lived.
If declines in the S&P 500 have been short lived, things are different in the UK market. The FTSE's decline started 15 May and there is no indication that this move down is over. During the decline many blue chips from the FTSE 100 have become oversold. When too many blue chips are oversold the FTSE is near a bottom. The indicator that measures this condition is the Top 20 Differential. This indicator is now at -2% which is near the oversold limit of -2.5%. Based on this indicator the FTSE is near a bottom.
However, based on the Elliott wave pattern, it would appear that the FTSE has one more leg down to come before the decline is complete.
The latest UK GDP data published last Friday was in line with forecast, and UK consumer confidence hit its highest level in nine years according to GfK's consumer confidence survey. Despite the positive sentiment the FTSE is still lagging the S&P and Friday's rally is likely to be another counter trend bounce.
