FTSE 100: Major Resistance Above 7050

We continue to see resistance above 7050, the FTSE 100 rallied to 7067 yesterday before pulling back. The sharp pullback we saw occurred at a time when BoE governor Carney was speaking. I think investors concluded that the Bank of England won’t lower interest rates and further stimulus is unlikely.

This disappointment was followed by a soft earnings report from Apple (NASDAQ:AAPL) in after hours. The FTSE is now back to 7000 which is a support area near the lower line of a rising wedge. The S&P 500 is really struggling to go up, as time passes the odds of an alternate wave count have increased significantly. Time is important because according to the pattern the S&P is in a third wave up, this means the rally should accelerate but so far this is not happening. As I said US investors are probably not active ahead of the presidential election. In this case the US index will continue to trade sideways until the second week of November.

The FTSE is weak for a different reason, it seems UK investors are taking money off the table in anticipation of bad news next year, also because they have made some good gains since June. I suspect the rally in the FTSE ended at 7129.8 and we are now in a counter trend bounce which is wave ii (circle).

Yet sentiment is still bullish, which is not consistent with a decline. But this could change, the BTI nearly turned down two days ago. Also the second wave of a decline often feel like another rally to new highs, this is because second waves are often powerful and they retrace a large portion of the first wave.

So far wave ii (circle) has retraced more than 62% of wave i (circle) and the pattern is not complete. The rising wedge will be complete with a final push above 7067 which is the top of wave (c). But it is also possible the trend has turned down early.