BTI: The BTI turned down on 4 May and is still declining. If our indicators are right expect bad news to hit the screen in the near future. A declining BTI in a bear market (negative 34-day BTI) accompanied by a decline in five waves is negative for stocks. A wave of optimism pushed the FTSE to unimaginable levels, a wave of pessimism should kick start a long period of declining prices. What would cause this wave of selling? The most obvious reason could be found on the streets of European cities. Cuts in the budget deficit in Greece triggered some rioting in Athens, these events spooked the market last week. Other European countries including the UK could follow Greece. Debt-cutting measures by some of the richest nations in Europe will hurt economic growth. In addition there could be more bad news in the banking sector after US regulators say they will investigate possible conflict of interest for banks that sold municipal bonds and then profited by betting against the securities.

Elliott wave count: When the trend is down we sell the rallies. When prices have collapsed and our indicators suggest that we are near the low we'll go long. At present we are right at the top of the next move down. Note the FTSE crossed over the 55-period moving average triggering a sell signal. The moving average is still declining, it's a bear trend so the rally must end soon. In fact it's possible it ended yesterday because we have a clear three wave pattern for wave iv (circle). The rally is a completed upward zigzag [(a),(b),(c)] for wave iv (circle). The next move is wave v (circle) down, an initial target is 5100.

The S&P has outperformed the FTSE after retracing more than 61.8% of its previous decline. Here again the 55-period moving average seems to act as resistance. Prices crossed over for a short period of time then the S&P turned down, the next major decline is underway. The rally was wave ii (circle) of a five-wave decline, the next move is wave iii (circle) down. An initial target is 1090.

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.