Today the FTSE 100will open lower in contrast with last Friday's opening when the FTSE surged after the Scottish referendum. This is not a positive development for the FTSE, the UK index had been lagging the S&P 500 and the positive news from Scotland was supposed to push the FTSE to new highs. Today this positive news is offset by some concerns from China.
Investors expect more evidence of a slowdown in China in tomorrow's manufacturing PMI. The recent soft data coming from China together with weakness in Europe is a real concern to central bankers from the G20 who met at the weekend.
They said they were close to adding an extra $2 trillion to the global economy, but monetary stimulus and low interest rates could lead to a potential increase in financial market risk. In other words they don't know if their actions will continue to boost stock markets or have the opposite effect. As a result investors are selling stocks this morning.
So far we are not seeing the resumption of Friday's morning rally in pre-open. There are some risks going forward, and the comments from central bankers are not helping the markets. But markets are resilient as we have seen in the last five years, they can climb a wall of worry. Yet there will be a time when the music will stop and the FTSE will go down for months or years.
The long term pattern on monthly chart is still a triangle. This long term correction or consolidation in five waves [(A),(B),(C),(D),(E)] is not complete. The next wave will be wave (e) down to an area near 4000. Because prices are near the previous high, this major decline is about to start. We are now in the final subdivisions of wave (D).