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Rally In The FTSE 100 Is Nearing An End

ByThierry Laduguie
Published 17/11/2014, 07:58
UK100
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The FTSE 100 became overbought based on the 13-day BTI and Top 20 Differential last week, today these two indicators are back to neutral. This does not change the forecast, but if the decline does not materialise after a week then we can start worrying about a false signal. On Friday stock markets were still resilient after strong US retail sales but today the trend is down after Japan unexpectedly fell into recession in the third quarter.

We know that Japan has been very aggressive with QE and stimulus is supposed to boost economic growth so the question is what's gone wrong in Japan? The same question can be asked about Europe, years of financial support by the ECB have produced nothing but deflation. And the bad news is that this will affect us in the UK. Prime minister Cameron warned that the world is facing a second economic crash. I think the party is over, 2015 will the year of reckoning.

If the global economy falls into recession and the stock market goes into a bear market the FTSE will be remembered as the index that lead the way after declining in five waves in a global bull market. The FTSE is one of the best forecasting indicators with regard to the global economy. On Friday the index made a new high, the rally from the October low is now a complex upward correction. Complex because it's difficult to identify the pattern inside the rally. It could be a triple zigzag or something else but not an impulse wave. This suggests that the rally is counter trend and when the decline resumes the BTI will turn down to confirm the next major decline.

FTSE 100: Hourly Chart

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