The FTSE 100 is pulling back further this morning, the advance is losing momentum as indicated by the bearish divergence on the MACD at the bottom of the chart. Last week the index made a new high but the MACD is lower (bearish divergence).
The S&P 500 and the pound have influence on the FTSE. It’s not clear if the S&P will rally in the short term, the pattern in the US index is not perfect but there is no reason to conclude the S&P won’t rally. The pound rallied on Friday afternoon, this move is the fourth wave of a five-wave decline. This means today GBP/USD should decline to new lows to complete the fifth wave. A move down in GBP/USD will boost the FTSE.
The FTSE was on course to hit 7400 on Friday when the pound started to rally. The rally in GBP/USD in late afternoon derailed the FTSE rally. Now the FTSE has been hit again by rising geopolitical tensions after North Korea launched a ballistic missile into the sea of Japan. From time to time North Korea distracts investors when it threatens its neighbours but these missile tests never have a long lasting effect on the stock market. I expect investors to turn their attention to the next thing today.
The next thing is an increase in M&A activity with the merger between Aberdeen Asset Management PLC (LON:ADN) and Standard Life (LON:SL) and Peugeot SA (PA:PEUP) buying General Motors (NYSE:GM) Company (SIX:GMUSD) unit in Europe.
On the chart not much has changed since last Thursday, the FTSE is completing a rally on weakening momentum, the index should decline this week, the target is 7200.
