So far the 7400 level in FTSE 100 has been a support, we saw the FTSE rebounding to 7480 yesterday. In the US the S&P 500 has support near 2430. For now the indexes are in a consolidation mode before a breakout. The breakout is more likely to occur to the downside, stock markets are tired to go up.
When the next move down starts these key levels will be broken. The US markets are resilient, they keep bouncing back without any conviction. If you look at the S&P chart it has been going sideways since 5 June. These sideways moves in an uptrend can be bullish, normally you see a pause before the market breaks higher. This is why I am always cautious when I am short and the market moves sideways in an uptrend.
The pound is the unknown, if I look at the GBP/USD chart, the previous decline was in five waves, the signature of a bear trend. The current rally is therefore counter trend and it is in three waves, this means GBP/USD will decline in the short term. But the larger pattern is not clear, it can be interpreted as a five-wave decline, if so the current rally will extend before the decline resumes.
A rally in GBP/USD would support a decline in the FTSE. Today the pound could be affected by the financial stability report that will be announced by Mark Carney at 10:30. One clue is found in the FTSE behaviour, this index tends to lead the S&P in a bear market scenario. The fact that the FTSE was the first index to peak and to turn down tells us the US markets will follow the FTSE lower.
