On Friday the nonfarm payrolls report came in slightly ahead of forecast, nonfarm payrolls increased by 252,000. Despite this number the FTSE closed down dragged down by housing stocks and supermarkets. House builders fell sharply after weak UK construction figures and there was profit taking on supermarkets following the strong previous session.
But there are other sectors not contributing to the rally like oil and mining stocks. Crude oil is still in freefall, and metal prices are weak. In the UK industrial production unexpectedly declined by 0.1% in November. We have a situation where the economy in Europe is too weak, in China the economy is strong but losing momentum and in the UK and the US there are signs that the economy is slowing down.
The Fed has already stated that they are not in a hurry to raise rates and the ECB will announce some measures to boost growth at their meeting on 22nd January. Because we know what the ECB is going to do investors have already taken position and as a result I don't expect the market to rise after the 22nd. The good news is priced in.
Despite the good nonfarm payrolls report the FTSE declined on Friday. This technical move was expected but the trend is up. That is the short term trend. In the long term the trend is down and I expect the BTI to remain down going forward. As long as the BTI remains down we must be cautious going long, it is always a stronger proposition to go long when the BTI is rising.
I expect investors to push the market higher before the ECB announcement, the top could coincide with the 22 january. There is also the 200-day moving average at 6673, this moving average is like a magnet, there is a good chance the FTSE will rally to the 200-moving average before the next decline starts. Because the pattern is an upward zigzag (a),(b),(c), wave (c) must end above the top of wave (b) before the rally ends, this level is 6652.