We have a timing indicator called 13-day BTI and a trend reversal indicator called 34-day BTI, when they are overbought they warm us of a pullback/trend reversal in the FTSE 100. The difference between the two indicators is in the size of the decline. With the 13-day BTI the expected decline will last a few days or a week. In the case of the 34-day BTI the decline will be more severe, we are talking about a multi-week decline.
Today’s rally in the FTSE is similar to that in May this year on this chart:
What we can see from this chart is that history repeats itself. The sharp rally in May pushed the 13-day BTI to overbought. This overbought 13-day BTI was a warning the FTSE would pullback and the index pulled back on 18 May.
The same thing occurred today, the 13-day BTI became overbought last week and the FTSE pulled back.
In May the pullback was followed by a rally to new high, the 34-day BTI then became overbought at the end of May. The indicator was warning of a multi-week decline. The FTSE declined from 1st June to the end of June.
If history is any guide today the FTSE should push higher near 7600 to bring the 34-day BTI to overbought. That move should be followed by a multi-week decline.
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