The FTSE 100 did not make a new high yesterday, the action was sideways. The index is rallying back to the top this morning, we can’t rule out a new high but the pattern appears to be complete. The rally has gone further than expected, the pattern has multiple extensions.
This happened because investors are not rational, when they are in a state of extreme optimism, they buy regardless of the risks and when they are fearful they sell. When they are fearful they cause a crash and what follows a crash is a new bull market. The opposite of a crash is a market melt up. When investors behave the way they do at the moment they create a market melt up, and what follows is a new bear market. Money cannot be made buying now (if you are a long term investor). However you can make money short term or intraday.
The best time to buy is when the market is depressed, right now if I look at the long term picture I would sell stocks and buy gold. Gold is at the start of a bull market because the dollar should continue to go down. GBP/USD is moving back towards the pre-Brexit referendum levels, I remember before the referendum the pound had little influence on the FTSE. Perhaps the relationship between the FTSE and the pound is back to what it was prior to the referendum.
You will note that in the last few days the FTSE, S&P and GBP/USD all rallied at the same time. The GBP/USD rally has been impressive yet the FTSE is going up. This suggests the FTSE is following the S&P and not the pound.
Today we have the latest inflation numbers for the UK, the consumer price index will be released at 9.30 GMT. As commodity prices are rising we could see a stronger number in which case GBP/USD will rally further. However the increase in oil and other commodity prices should be offset by the lower dollar.
Not much has changed on the FTSE pattern, yesterday was a quiet day and the index moved sideways in a tight range. The high so far is 7792.5 this could be the top of the rally. However in this crazy market we can’t rule out a new high, at some point there will be a pullback in GBP/USD, this could push the FTSE higher and also the S&P is still rallying. The FTSE will turn down with the S&P when the S&P is ready, as long as the S&P rallies the FTSE is unlikely to turn down. The good thing for the bears is that upside is limited, the next major move will be down.