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FTSE 100: Two Scenarios For The Rally

Published 08/01/2015, 08:05
UK100
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US500
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The FTSE is bouncing back and there are two scenarios right now. The first option is a wave x that will be followed by a decline to 6250. In this triangle pattern wave d (circle) should retrace 78% of wave c (circle). So far wave d (circle) has retraced 62% of wave c (circle) so it looks like the FTSE will decline further to complete wave d (circle). The only concern with this scenario is that it is not supported by the wave count in the S&P 500.

The S&P is expected to rally therefore the FTSE is unlikely to drop on its own. If this scenario is unfolding the rally must stop now, as I write the index is trading near 6500 in pre-open. The FTSE must start its decline to 6250 but it's risky to go short here because if the S&P continues to rally as expected, the FTSE will rally too. If the rally continues we will revert to the previous wave count (alternate wave count) shown on the following chart:

This is the second option, I discussed this wave count in previous updates. It is possible that wave c (circle) is still unfolding and taking the shape of a zigzag [(a),(b),(c)]. A common feature in a triangle is the zigzag patterns in each wave. In this case what we are seeing now is wave (c) of c (circle). As you can see if this scenario is unfolding the FTSE will rally to 6700. The advantage of this wave count is that it is supported by the S&P. A break above the 55-period moving average (5534) would increase the odds of this scenario happening.

FTSE 100: 90 minute chart

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