Sentiment has turned bearish while the Elliott wave pattern requires a final move up to 7000. This presents a dilemma, has the trend turned down or will we see a final move to 7000? In general the direction of the BTI (sentiment indicator) gives the direction of the FTSE so if the BTI is declining as it is now, chances are the FTSE is in a downtrend.
Of course there is always a possibility the BTI will turn up again in the next few days, this would confirm the wave count. At present we have a conflict.
Yesterday's decline was triggered by falling crude oil, fear of higher interest rates and ongoing concerns about Greece. When oil and mining stocks fall at the same time the FTSE will fall too, weak oil price and strong dollar is negative for the FTSE.
Many investors appear to have reacted to last week nonfarm payrolls a bit late. The strong report suggests that interest rates in the US will rise soon, yet on Monday the news appeared to be priced in, stock markets were firmer. But this was a trick, yesterday fears of higher interest rates grew and the sell off in the stock market intensified. The question now is, are we at the start of the long decline as indicated by the overbought 34-day BTI or are we in the final move up to 7000?
Based on the wave count in the UK and the US it would appear that stock markets have a final move up to complete. The break below the top of wave 1 at 6773 cancels the impulse wave scenario, When the fourth wave overlaps the first, in general the decline will extend which is what happened yesterday and there is a high probability that the pattern will become an ending diagonal as seen on the daily chart. But wave 4 could end in a wide range between 6700 and 6600.