The rally extended and the FTSE 100 is now overbought on the 13-day BTI. But calling the top will be challenging, when the FTSE goes up alone irrespective of what the S&P and the pound are doing, we need to wait until it calms down. There will be a time when the correlation will change, when the FTSE shows weakness relative to S&P it will be time to sell it. My FTSE prediction is for a rally to 7600. Yesterday you could see the index was very strong, and this strength continues today. The new all-time high has attracted buyers, many fund managers who were sitting on the sidelines were forced to buy when the index broke into new highs. If they don’t buy their funds will underperform the index.
The FTSE is defying gravity after completing five waves up, this outperformance will not last very long. History shows that when the index behaves like this a big correction will follow. A recent example when the index was defying gravity occurred in the first half of January this year, a large move down followed in the second half of January. I expect the same thing to happen after a final move up to 7600. But right now I expect a small correction because the 13-day BTI is overbought and the RSI is overbought and the index is at trendline resistance. The pullback does not always start from the moment the 13-day BTI becomes overbought, it can happen in the next few days. This timing indicator tells us the FTSE will pullback before moving higher. The question is, is the pullback currently underway or will the index rallies to 7550 then pullback?
Yesterday’s high was 7533.7, this could be the top of the third wave. The small pullback I anticipate is the fourth wave. If the third wave is not complete the next target is 7550. After the fourth wave pullback the index should rally to 7600.
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