We saw another large FTSE 100 move yesterday, this time it was down. When people lose confidence in stocks they will sell as high as possible. The more the FTSE rises the more sellers appear, to the point where too many people want to get out at a good price. This good price is above 6200. The area above 6200 is strong resistance, I don’t expect the FTSE to return into that area.
China growth concerns continue to weigh on markets, in Europe too where manufacturing data was disappointing. The spectre of slower growth and higher interest rates is hurting the market.
Sentiment is bearish, the Top 20 Differential is no longer oversold but the 13-day BTI is still oversold.
When one of the timing indicators is oversold it is not the best condition to go short because there is a risk of a rebound. This rebound is currently underway in pre-open. As we have seen last week, the bounce can be powerful following an oversold condition. For this reason we want to go short as high as possible.