FTSE 100: The Pull Back is Nearly Complete

The markets are pulling back today, the Dow Jones does not look like it will make a new all time high today. Markets are pulling back after China tightened mortgage rules to cool the property market. Chinese real estate companies are down, in Europe stocks are down too. During the recent move down from the high on 20th February, the BTI, a sentiment indicator, has continued to rise (bullish divergence) and the Beta Matrix shows that the FTSE is a buy at current levels.

The Beta Matrix measures the performance of low beta stocks vs high beta stocks. When low beta stocks outperform high beta stocks as it’s been the case recently, the relationship changes and investors move back into more aggressive stocks like banks and mining stocks. A buy signal is given above 1. All this points to a rally in the near term and this is confirmed by the Elliott wave count.

The steep rally in the FTSE Friday’s afternoon was the last leg up inside wave (d). It ended at 6391. In Elliott wave terms the FTSE is tracing out a potential running triangle [(a),(b),(c),(d),(e)]. Friday’s rally should be followed by a decline to 6270 [wave (e)]. Already this morning the FTSE is down, I believe this is the start of wave (e). If the pattern is a running triangle there is considerable upside potential once the pull back to 6270 is done. Any decline to 6270 should be followed by a rally to new high, a potential target is 6550. This target could be hit by the end of March.

Thierry Laduguie is Market Strategist at www.bettertrader.co.uk

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