FTSE 100: Five-Wave Decline Signals Bear Market

Stock markets are near a low and in some cases have already made a low. The FTSE 100's low was 6295, this level remains intact. In the US there is potential for a final move down to 1969 before the decline ends. Given that declines are in five waves and market became oversold on various indicators, the odds favour a rally in the short term.

Perhaps the most significant event has been the plunging oil prices. Crude Oil goes down when investors anticipate a global slowdown or a recession. Crude oil peaked in June this year but a series of weak economic number mainly from China and Europe has pushed oil prices to levels not seen since June 2012. There is a malaise as investors finally realise that pumping money into the economy was a waste of time. That QE was supposed to boost the economy and to create jobs and wealth.

Well, wealth was created in the stock market as central banks manipulated the markets with low interest rates and QE. During that period it seemed the stock market was a one way bet. But it's paper money and unless investors cash in now, the bear market will return with a vengeance and the money made during the inflated bull market of 2009-2014 will be lost.

Another significant event is the decline in five waves from the peak at 6905. The decline in five waves [i,ii,iii,iv,v (circle)] is the clearest indication that a new bear market is underway. I have warned for months that the lagging behaviour of the FTSE relative to the S&P was a bearish signal and that the FTSE was the leading index. I was right, when the FTSE does not follow the S&P higher troubles are brewing.

The lagging nature of FTSE was a warning stock markets would go down. We are now at the end of the decline, the next move should be a powerful counter trend rally. But this rally will end below the previous high at 6905 because it's a bear market.