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FTSE 100 In A Counter Trend Bounce

ByThierry Laduguie
Published 06/10/2014, 08:05
UK100
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An encouraging US employment report on Friday sparked a rally in stocks. The market had been depressed by worries about global growth but the US Labor department reported nonfarm payrolls rose 248,000 in September, this number was higher than expected. Stock markets rallied after the report but the question is: can the rally last?

One report does not make a trend and there are some serious issues in Europe that won't go away therefore it could be that the current rally is a dead cat bounce. After all the FTSE 100 is oversold based on the Top 20 Differential. When this indicator is oversold the probability of a rally is high but this does not mean the FTSE will rally to new highs.

Sentiment is still negative, my view is that the market is in a short term decline and prices are oversold so any good news will attract buyers and the market will bounce back. This does not mean the rally will continue. Based on the Elliott wave pattern the current bounce is a fourth wave. The second timing indicator, 13-day BTI, is no longer oversold as the bounce is underway.

The FTSE bounced back on Friday but the index is still well below its 200-day moving average and the break of the lower line of a long term ending diagonal is a confirmation signal that the trend has turned down and any rally should be treated as a counter trend rally.

FTSE 100 Daily Chart

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