The FTSE 100 closed down on two consecutive days. Thus it would appear the bear trend has resumed. Brent Oil is still trading near the highs, the S&P 500 is still trading near the highs, it seems the FTSE is going down alone. It could be something to do with the referendum or it could simply be that the UK index is leading the way as it has often done during the bear market. In this case I expect the S&P to follow the FTSE lower.
Today we have some important news, the EU interest rate decision and ECB press conference at 1.30pm. Mario Draghi will speak but I don’t expect anything significant to be announced. The ECB will probably keep interest rates on hold and raise growth and inflation forecast.
But today Asian stocks are lower after surveys show global manufacturing activity remains weak. The global economy is in a “low growth trap” the OECD said on Wednesday. The fear is that if the Fed raises rates in June the global economy will slow even more.
As a result we can expect limited upside in the stock market, this together with the uncertainty surrounding the referendum in June will keep a lid on the market. After the recent rally the FTSE became overbought, the Top 20 Differential was above 2.5%. In a bear trend the combination of overbought Top 20 Differential and completed Elliott wave pattern is a powerful signal to sell. As a result we went short and the decline is underway.
Wave 2 retraced 61.8% of wave 1. If the recent high at 6290 is the top of wave 2, the current decline is the start of wave 3. The FTSE has a long way to go before finding some support.
