Despite the recent sell off my BTI (sentiment indicator) is still rising (bullish divergence), an indication that the FTSE will rally. But the rally must start now otherwise there is a risk the BTI will turn down. Sentiment is affected by stock market declines, if the market falls and the decline lasts too long people turn bearish.
We have been waiting for a rally and I am sure it will come but the two main sectors oil and mining stocks must bounce back. Oil stocks are dropping too because crude oil is falling. The last time crude oil was falling fast was during the financial crisis in 2008. This time there is no crisis, which makes the fall even more ominous. It is warning us of a serious problem ahead.
I have said all along that 2015 will trigger the next bear market, so far I am right. The FTSE will end the year down, commodities are in free fall, the fact that oil and metals are still going down is a clear indication that things won't get better in 2016.
Yet investors are greedy, when they see stocks trading too low they buy. And given that declines in December are generally a buying opportunity, this means we will probably see a rally in the last two weeks of December.
But there is a danger next week, the Fed will probably hike interest rates. The question is how investors will react? Will they be frighten and sell stocks or will they buy? I note that the market rallied a few weeks ago on talks the Fed would raise rates, this suggests that the news is priced in, in which case even if the Fed raise rates next week I don't expect any significant decline. But sentiment can change, if sentiment turns bearish ahead of the announcement we could see a sell off.
The FTSE is in a bear market in five waves [i.ii.iii.iv.v (circle)], the next move which is a rally is wave ii (circle).
