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The two timing indicators, Top 20 Differential and 13-day BTI, became oversold last week but as I suspected the wave count on the S&P 500 was not complete so yesterday the index made a new low and today we have a completed five wave decline in the S&P. A five-wave decline accompanied by an oversold timing indicator is a signal to buy. However, sentiment is still bearish as indicated by the e-Yield Sentiment Indicator which means the main trend is down and the rally will be counter trend.
The situation in Syria is causing some volatility, crude oil is rising. A US strike on Syria would push oil higher but I am not sure it would have a big impact on stocks. Investors anticipate a strike, this is already priced in. Remember the Iraq war? When the war started in March 2003 the stock market rallied strongly, that was the start of the bull market from 2003 to 2007. When an event is expected and it happens it becomes a non market moving event.
There is a clear five-wave decline in the S&P from 2nd August on the 90-min chart. In the UK the FTSE 100 completed its five-wave decline on 21 August. Since then the FTSE has been rallying in a counter trend move that could last until next week. On the daily chart the index is below the 50-day moving average and above the 200-day moving average, the directional movement index has given a sell signal. Any rally should lead to the next wave down. As the FTSE has already completed a rally in (a),(b),(c) on the 90-min chart and the S&P is at the start of its own counter trend rally, chances are the rally will extend. The rally is wave ii (circle) on the chart above. If the main trend has turned down as I suspect, the decline will be in five waves. When wave ii (circle) is complete the next move will be wave iii (circle) down.
Thierry Laduguie is Market Strategist at www.bettertrader.co.uk
