e-Yield indicators are bearish but the declining GBP/USD is bullish

Today we have an alternate wave count, this bearish scenario is supported by the S&P, e-Yield indicators, and the Elliott wave. As you can see on the chart this alternate wave count assumes that the rally ended at 7447. In fact this is also the end of the bull market represented by wave (5). In the previous wave count I was expecting the bull market to end in May or June. Why would the bull market end now when stock markets are so strong?


e-Yield indicators

This is an ideal situation to mark the end of a bull market because in most cases few people will predict a bear market. Bear markets start when they are least expected so when you see a strong stock market accompanied by a large proportion of bullish investors and an increase in takeover activity you have the ideal conditions for the start of a bear market. I say ideal but not easy to predict the exact start of the bear market because these conditions can remain in place for months.

Then one day the market will turn down and a new bear market will start. Marketwatch reported that the S&P has gone 98 days without closing below its 50-day moving average. The last time this happened was in March 2011, this shows you how strong the market is. Naturally it is always risky to go short in a strong market, we could be at the start of a long decline but right now I recommend not to bet too much on this decline.

I am not saying with confidence this is the start of the bear market but it could be, the e-Yield indicators have a good track record in the forecast process. The alternate wave count is one interpretation of the pattern, this one is bearish because it’s a completed five-wave rally on the daily chart. The alternative is the current decline is wave 4 of a five-wave rally, this scenario has a lower probability of happening. The reason it could happen is because I expect a long decline in GBP/USD, this will boost the FTSE going forward.

So the main concern in the short term is the pound, otherwise there is enough evidence to suggest the trend in the FTSE has turned down.

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