The FTSE 100 closed up on Friday after falling for four straight days and today the index is up in pre open. The euro zone banking jitters are fading and investors appear to be returning to the market. The earnings season got underway last week, investors have learned one thing, the market tends to rise during the earnings season. This is probably why they are happy to buy stocks after last week sell off.
But we are in a period of bearish sentiment, what we have learned is that when sentiment is bearish good news will not necessarily push the market higher, for this reason the current bounce can not be trusted. It could be another dead cat bounce. This week we have some important earnings reports from major banks, Intel Corporation (NASDAQ:INTC), Yahoo! Inc (NASDAQ:YHOO), eBay Inc (NASDAQ:EBAY) and Google Inc (NASDAQ:GOOGL).
If the next rally is underway we will know soon because the FTSE is not far away from a key resistance level. A break above 6725 would increase the odds of a short term rally.
What is not clear at the moment is whether or not the decline has ended. It could have ended because we have a clear five-wave decline inside last week's decline and prices are on the 200-day moving average which is a strong support level. Each time the FTSE declined to the 200-day moving average in the past twelve months a short term rally started. This together with the earnings season means the FTSE is well supported and as a result there is a chance the short term rally has already started. 