So far the FTSE has failed to breach the 6100 area, and very close to touching the previous swing low at 5811. I have chosen a more sensitive form RSI to show the divergence that occurred during the run-up to 6100. Although this may back up my original post on 27th Feb, it is too soon to call for a price reversal.
As price action is within a consolidation, I can pay closer attention to the RSI which is approaching oversold – for this reason I expect a bullish pull-back within the current consolidation, before further declines. It should be noted that the weekly RSI setting is currently at 55 (neutral) so cannot see price going below 5514 unless the weekly RSI approaches the overbought area of 80+. If anything, the current choppy conditions of the FTSE is just a modest correction and expect the bull-run to regain strength and break the 6109 area for another leg higher.
Short Term: Bullish within the channel
Medium Term: Bearish retracement below 5811
Longer Term: Bullish and for price to break 6109
Quite excessive divergences have been forming between the small-cap and large-cap stocks within the UK and US markets. Although this does not provide an accurate turning points in price or time, it does help provide a ‘heads-up’ to the possibility of a reversal, and aid me with alternative Elliott-Wave counts if specific price points are broken. In short, “The troops are struggling to keep up with the generals”.
If FTSE100 breaks 6100 convincingly and turns this into support, then this would indicate further gains and we can temporarily ignore the inter-market divergences. If however it fails to break the level of 6100 then falls below 5817, then my bias would lean towards a change in market direction and to call a possible top. Either way I have reduced my end of day (EOD) stock positions within my portfolio to the bare minimum and will await the market to decide.
Divergences between DJI and the broader market hint at the possibility of a price reversal. In a healthy market we would expect the small-cap stocks converge with the large-cap, which is not evident in the chart below.