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Despite Yesterday's Rally, FTSE Remains In A Downtrend

ByThierry Laduguie
Published 02/07/2014, 08:10
UK100
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US500
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The S&P 500 made a new high but the FTSE 100 is far from making a new high. As I mentioned a few days ago we are in a period of first degree in bullish sentiment, during these periods declines can be short lived. This is why the decline in the S&P did not extend. From the low at 1944 the US index has rallied to 1978. In the US there are too many people waiting to buy the dip.

The story is different in the UK, the FTSE is weak relative to the S&P. Some commentators cited the good Chinese manufacturing PMI as the reason why stock markets surged yesterday, but this report came in in line with expectations. It would appear that investors are betting on the Goldilocks scenario and are ignoring some potential pitfalls like the geopolitical risks in Iraq and Ukraine.

If investors are complacent and sentiment as measured by the BTI (sentiment indicator) is negative, there is now an increased probability that stock markets will pull back. When the BTI is declining the stock market tends to go down. The strong rally yesterday was in three wave which is the signature of a counter trend rally. The FTSE is still in a downtrend.

FTSE 100 Chart

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