The FTSE 100 is still oversold based on our timing indicator (Top 20 Differential). When the Top 20 Differential remains oversold for too long, stocks will rally. This does not mean we won't see a new low before the rally starts but odds favour a rally in the short term and the wave count has been amended to reflect this. Right now the UK index is struggling to rally because the S&P 500 has yet to complete its own move down, and the economic was disappointing yesterday.
US consumer confidence fell in September and the Chicago PMI was lower than anticipated. This should have been good news for interest rates but investors are concerned by the weak numbers coming from China and Europe. Yesterday's below forecast CPI in the Eurozone was another reminder that the ECB has failed to revive the economy.
The Euro fell further and the Dollar continues to climb. In the UK GDP came in in line with expectations, but fashion retailer Next warned that third quarter sales were lower than previously estimated and this could hit full year profits.
As mentioned above when the Top 20 Differential is oversold the FTSE is near a bottom, this means downside is limited and the next move will be up. But traders must allow for a move lower and near 6550 before the rally starts.