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FTSE 100: A Bounce Is Imminent

ByThierry Laduguie
Published 29/09/2014, 08:06
UK100
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The FTSE 100 is now oversold after a timing indicator (Top 20 Differential) dropped to -2.5%. This reading is normally seen at market bottoms which means the FTSE is in the fifth wave of the impulse wave down. In general the market does not change direction immediately after the indicator touches -2.5%, the decline can continue for a few days and the indicator can move lower.

This means the fifth wave is either over or it will end in the next few days. Markets have been depressed by fear of higher interest rates. Friday's US GDP reinforced the view that the Fed is on course to raise rates. US GDP annualised growth rate was revised higher and the dollar is rallying, there is a feeling that the strong dollar is a sign of political uncertainty.

The strong economic data is bearish for stocks, as long as people fear higher interest rates, strong data will be negative for stocks. Today we will have more clues about the state of personal spending (13h30) and pending home sales (15h00).

The FTSE declined strongly last week, however because the Top 20 Differential is oversold we are looking for a strong bounce sometime this week. The bounce may have started today but because the trend is down we can't rule out another ecline before the counter trend bounce begins.

FTSE 100: 2 Hourly Chart

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