The BTI, a sentiment indicator, was declining while the FTSE was climbing. On Monday the BTI turned up. A rising BTI indicates an uptrend but I am not going to turn bullish just because the BTI was up for one day. Sometimes the indicator can turn up temporarily for a day or two then the decline resumes and the BTI turns down again. The FTSE has become overbought based on e-Yield indicators and this is the main warning message. The FTSE is still in an uptrend but near the end.
Two possible scenarios:
#1 The peak at 5841 remains intact. This is possible because there is an alternate wave count in which the rally from the low on 26 July is in five waves. This wave (c) is not a textbook impulse wave as it is in seven waves. It could be that wave iv was an irregular running flat (in the yellow circle on the above chart). I say irregular because the second leg of the running flat was too high above the top of wave iii and its shape is not in three. Assuming a running flat for wave iv we have five waves up inside wave (c). According to this interpretation wave (c) of y (circle) is over and we are at the start of a deep correction or should I say a long decline which is wave 3. Wave 2 was an upward double zigzag [w,x,y (circle)] ending at 5841.
#2 If the FTSE pushes above 5841, the rally will continue for a bit longer before ending in the target range. The target range is 5840-5900. In this scenario wave 1 (circle) extended in five waves [i,ii,iii,iv,v] and wave 3 (circle) ended at 5841. The final move should be a decline [wave 4 (circle)] followed by a rally in the target range [wave 5 (circle)].
Which way next?
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Thierry Laduguie is technical strategist at e-Yield