Yesterday some key levels were broken in the US, this raises the possibility that the rally has ended. Weakness in US markets took the S&P 500 below the key support at 1990, the FTSE 100 is still on course to rally but if the S&P is going down, the FTSE will go down too.
The main worry is higher interest rates in the US. Bond yields are rising, they hit their highest levels in a month on concerns the Fed will raise rates sooner than anticipated. This is in contrast with the view last Friday after the nonfarm payrolls report. The weak employment report suggested that rates would not rise anytime soon. But investors often change their mind a few days later and as I said before, when a market has rallied too far in a short period of time, the risk of a trend reversal increases.
This is why it is never a good idea to go long when prices are near overbought. Sentiment is still bullish and we have a conflict between the S&P and the FTSE, the S&P's trend appears to have turned down, the FTSE 's trend is still up. For this reason it's possible that the rally in the FTSE is over.
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FTSE 100 Rally Is Running Out Of Steam
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