Despite the recent sell off sentiment, as indicated by the rising BTI, is still bullish. Friday's stronger than expected nonfarm payrolls report sparked a sell off. A strong report is good for stocks but in the context of rising interest rates, it is a negative development. The market has been supported by a the belief that interest rates would not rise early. This view has changed after Friday's report, it is highly likely that the Fed will hike rates in the next few months.
Another thing that has been friendly to the market is the ECB QE program which starts today. The ECB will but 60 billion euro of debt per month. This money is supposed to find its way to businesses, as banks increase lending, businesses can invest and expand but the question is will it work? Nevertheless the sound of QE is always well received by investors, we can expect the FTSE 100 to be supported above 6800.
Today's decline could extend because the 34-day BTI is overbought. As discussed in previous updates when this indicator is above 400 the FTSE is near a major top. If the top is already in place the decline will extend. But if the top is not yet in place as I believe, upside is limited because the next move up will be a fifth wave.
So far the rally from the low in October 2014 is in three waves, the high at 6974.5 marked the top of wave 3. The current pullback is wave 4 so the next move up will be wave 5. This explains why we will probably see another rally above 7000 but not much higher because the 34-day BTI is overbought.