BTI: The BTI turned down on 14 January and is still declining. Retail sales continue to decline as expected and in the US consumer confidence hit a new low reflecting a contraction in the labour market. The Banking sector took a beating recently, it is now bouncing back and lifting sentiment in the broader market. This is why we are seeing markets rallying. The news is not good and there is little incentive to buy at current levels. Tonight interest rate decision in the US will add volatility to a fragile market. The bearish divergence between a rising FTSE and declining BTI is an indication that the current rally is a counter trend rally. It would feel better with a negative 34-day BTI but for some reason the 34-day BTI is still positive. This lagging indicator could turn negative anytime now, a negative value would support our view that we are in a bear market.

Elliott wave count: The counter trend rally is now underway but the pattern is slightly different. Instead of ending on 21 January, wave i (circle) appears to have ended on 23 January after wave (v) completed a kind of ending diagonal. It is not a perfect ending diagonal but there is not really any alternative. The FTSE is about to make a new high (above 4225) so we can assume that wave i (circle) ended at 3956 and the current rally is an upward zigzag [(a),(b),(c)]. A break above 4225 would confirm that wave (c) is underway, the third leg of the upward correction could terminate near 4300. There are good reasons to believe that prices will break above 4225. Firstly, futures are pointing to an opening near that level, secondly the upward correction in the US markets does not appear to be over. When wave ii (circle) is complete, the next move will be wave iii (circle) down. An initial target is 3600.

The Dow Jones is about to break above 8240 a key resistance level that has been tested three or four times in the last week (see chart). Here too the futures are pointing to a break above that level, an indication that the upward correction [wave 2] is underway and has yet to hit the target near 8400. Note the area beneath 8400 was a previous support, now it should act as resistance. The completion of wave 2 should lead to 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.