UK market timing

FTSE Short Term Forecast

Friday 30 January 2009

8.00am GMT

FTSE short term forecast: Down

A decline to 3600

Selling area: 4200 or higher

Stop loss: 4320

Model portfolio exposure: 70% short

BTI: Down

34-day BTI: Positive

13-day BTI: Neutral

BTI: The BTI turned down on 14 January and is still declining. UK consumer confidence dropped to new lows as house prices tumble and unemployment rises and US durable goods orders declined more than expected. Jobless claims in the US were more or less in line with forecast. Today's big news will be the US GDP report at 1.30pm, it will tell us whether the US recession is deepening. A better than expected number would probably rally the market but any rally should be seen as a bear market rally. Despite a positive 34-day BTI we assume the FTSE is in a bear market because the indicator is about to turn negative. The 34-day is dropping fast and is now standing at 26. It should become negative early next week. This would confirm our view that the main trend is down.

Elliott wave count: Yesterday's sharp drop in the FTSE was the start of wave iii (circle) down. Wave ii (circle) ended on 28 January after prices completed an upward zigzag [(a),(b),(c)]. Wave iii (circle) is an impulse wave which means it should subdivide into five waves. Yesterday's decline is the first wave and it's not clear if this first wave is over or it will continue to move lower today. If the GDP is good and the market rallies we will conclude that the first wave down is over and the second wave is in progress. In a bear trend we shall sell the rallies. The next target in the short term is 3600.

The Dow Jones hit resistance in the 8350 area then reversed (see chart). That was a typical support now becoming resistance scenario. The rally to 8400 marks the end of wave 2 and the start of wave 3 down. An initial target is 7000.

What is the BTI (Bullish Trend Indicator)?

The BTI is a sentiment indicator used to assess the mood of investors. When the daily change in the BTI is down sentiment is bearish. When the daily change in the BTI is up sentiment is bullish. The BTI is used to assess the near term direction of the market and confirms the Elliott wave count.

The 34-day BTI is used to assess the main FTSE trend. When the 34-day BTI is positive we are in a bull market, when the 34-day BTI is negative we are in a bear market.

The 13-day BTI is used to identify intermediate FTSE tops/bottoms. When the 13-day BTI is overbought the FTSE is near a top. When the 13-day BTI is oversold the FTSE is near a bottom.

Bullish influence	Bearish influence
	Wave count
	US markets
	BTI
	Top 20 Differential
34-day BTI

Top 20 Differential

Epic	Name	Sector	Trend	Wave	Differential	Status
AAL	Anglo American	Mining	down	down	-17.2%	Trending
AZN	Astrazeneca	Pharmaceuticals	N	down	-8.7%	Oversold
BA	BAE Systems	Aerospace & Defence	N	up	9.9%	Overbought
BG.	BG Group	Oil & Gas	down	up	6.6%	Trending
BLT	BHP Billiton	Mining	down	up	10.5%	Overbought
BP	BP	Oil & Gas	down	up	1.2%	Trending
BATS	Br American Tobacco	Tobacco	N	up	8.8%	Trending
BT.A	BT Group	Telecoms	down	down	-16.3%	Oversold
DGE	Diageo	Beverages	down	up	2.0%	Trending
GSK	Glaxosmithkline	Pharmaceuticals	N	down	-1.6%	Trending
HSBA	HSBC	Banks	down	up	11.4%	Overbought
NG	National Grid	Utilities	N	up	-0.2%	Trending
RB	Reckitt Benckiser	Household Goods	N	up	1.9%	Trending
RIO	Rio Tinto	Mining	down	up	11.9%	Overbought
RDSB	Royal Dutch Shell	Oil & Gas	down	up	5.4%	Trending
SAB	Sabmiller	Beverages	N	up	8.5%	Overbought
STAN	Standard Chartered	Banks	down	up	19.6%	Overbought
TSCO	Tesco	Food & Drug Retailers	down	up	3.1%	Trending
ULVR	Unilever	Food Producers	down	down	-8.1%	Oversold
VOD	Vodafone	Telecoms	down	down	-1.3%	Trending

		Average			2.4%

The Top 20 Differential moved down from 3.4% to 3.3%. After adjustments the Top 20 Differential stands at 2.4%. This level is still near overbought which is not what we should see if we were near a temporary bottom. As a result we can expect further weakness today and early next week, unless the GDP is good and the market rallies early.

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