The mood of FTSE 100 traders is changing from bearish to bullish according to the BTI (sentiment indicator) but the second sentiment indicator, 34-day BTI, is still declining and not confirming the BTI. In this situation we assume that sentiment is neutral.
A rising 34-day BTI would be bullish. Stock markets are firmer this morning after Chinese GDP came in slightly ahead of forecasts. A raft of stimulus measures has contributed to the pace of growth in China and there are talks of further measures to come.
So far the earnings reports from US companies are having a positive effect on the stock market, shares of Goldman Sachs Group (NYSE:GS) and J P Morgan Chase & Co (NYSE:JPM) rose strongly after the companies reported a good set of results.
One of the main event yesterday was Fed Chair Yellen's testimony to Congress. In her speech Janet Yellen raised concerns about "substantially stretched valuations" in some sectors. This prompted investors to take profits and the stock market declined after Yellen's comments.
At the same time data coming from Germany and the US was disappointing and depressed stocks. Both the German ZEW survey and US retail sales came in below expectations.
When the BTI turns up we can prepare ourselves for a change in sentiment from bearish to bullish. If sentiment turns bullish the rally will probably resume and this could happen in he next few days.
We are currently in a correction and the decline could end above or below the previous low [6643] depending on which pattern unfolds. But the next move should be up.