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FTSE 100 Still Consolidating Ahead Of Breakout

Published 14/05/2015, 07:54
UK100
0.61%

Sentiment has turned bearish at a time when the index is near a major top. Will the index rally to 7100 before turning down or will the decline starts immediately? I expect a rally first, but sentiment has a powerful influence on the index, when sentiment is bearish there is an increased risk the index will decline immediately. If you are long I think it’s a good idea to use a trailing stop loss in case the decline resumes.

We continue to see a stock market in the US trading near the highs while the economic data continues to disappoint. This is not healthy. An unexpected drop in US retail sales prompted a sell off and in the UK the Bank of England lowered its forecast for GDP and wage growth, an indication that economic activity will slow. Furthermore the rise in bond yields is starting to unsettle investors. On the positive side US and UK interest rates are unlikely to rise anytime soon.

Sentiment has turned bearish two days ago yet the wave count suggests a rally. Sometimes the BTI will turn down for a few days then it will go up again, a rising BTI would support a rally to 7100. If the BTI continues to decline the risk of a decline in stocks will increase. Right now and as long as the FTSE remains above Tuesday’s low (6887.5) we assume that the index will rally to complete wave (c) of ii (circle).

FTSE 100: 120 min chart

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