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Recent price action in crude oil and the S&P 500 contradicts the position of the FTSE 100. There is a divergence between the FTSE and the S&P, the S&P is trading near this year’s high but the FTSE is well below its high (6427.5). Crude oil is trading well above the levels seen at the start of the year. The strength in oil and the S&P was supposed to boost the FTSE to new highs. So what is going on? It could be the uncertainty about the referendum in June weighing on the index, or it could be something to do with the bear market.
As I have said many times, in a bear market the FTSE tends to underperform the S&P. When the S&P is rallying and the FTSE lags, we should be cautious. The lagging nature of the FTSE is an indication the trend will turn down and the bear market will resume. I expect the S&P to turn down, however, in the next few day it’s possible the S&P will push slightly higher.
Concerns about economic growth remain after disappointing manufacturing numbers this week. So if today’s nonfarm payrolls report is weak the market will probably sell off. I suspect a rate hike has been priced in so if the report is strong the market will rally. Expectations are for 160K new jobs to be added for May.
Technically, indicators are mixed and the Elliott wave is a third wave down. Sentiment is no longer bullish and the second wave retraced more than 61.8% of the first wave which is a common retracement level for a second wave.
S&P 500
Indicators are mixed and the Elliott wave is a third wave down. But the second wave must end below 2111, a move above that level would change the pattern. The pattern is a completed expanded flat [(a),(b),(c)] and wave (c) is in five waves [i,ii,iii,iv,v] which means the rally is complete. This means the next move down which is wave iii (circle) is about to start.
Thierry Laduguie is Trading Strategist at www.e-yield.com
