A potential rally to 5300

The bearish nature of the BTI is associated with a declining market which is what
we are seeing, but this does not mean the FTSE will not rally.

When the trend is down, rallies which are counter trends, occur on declining BTI.
We saw it in the first three days of February, the bearish divergence between the
BTI (declining) and the FTSE (rising) was a clear indication that the rally was
counter trend and not the resumption of the bull market. Investors are cautious
because they know last year performance will not be repeated. If the conditions
for a rally or a continuation of the bull market are not perfect, they will sell.

Our timing indicator, 13-day BTI, is certainly in a position for a rally. When the
13-day BTI is oversold, the decline is nearing an end, see chart.

The decline is nearing an end also because we have five waves down from the top
on 11 January. The more indicators pointing in the same direction, the better. A
completed impulse wave accompanied by an oversold timing indicator is a more reliable
signal to go long.

To learn more go to www.eyield.co.uk

Three indicators in one

At eYield we have developed a new tool to trade the FTSE 100. It is not for intraday traders but for those who do not have the time to follow the market during the day. You receive an email in the morning before 8am and another in the afternoon after 5pm. The system gives Buy and Sell signals on the FTSE 100.

Each update contains information about the current state of the FTSE 100, long,
short or neutral, see table.

The FTSE Timing Indicator is an affordable system with a high success rate. Its
signals are derived from three of our proprietay indicators, 13-day BTI, Top 20
Differential and Beta matrix.

The 13-day BTI measures extremes in sentiment. When sentiment is too bearish, the 13-day BTI is oversold, this situation tends to occur at market bottoms.

The Top 20 Differential measures how some of the largest stocks by market capitalisation move in relation to the FTSE 100. When the big caps are oversold so too is the FTSE.

The Beta matrix measures investors' risk appetite. When the Beta matrix hits a high then turns down while the FTSE continues to decline (bullish divergence), it's a signal to go long.

When each of these indicators gives its own buy signal, the odds of a FTSE rally
increase significantly. For example yesterday the Top 20 Differential reached oversold and today a bullish divergence occurred on the Beta matrix. The 13-day BTI is not far from oversold. The FTSE Timing Indicator gave a Strong buy.

To learn more go tow ww.eyield.co.uk

A complex fourth wave

Markets move up in five waves (bull market). Sometimes the wave pattern can take longer to fully develop, in particular with a fourth wave.

Fourth waves are characterised by indecision, they occur after a strong move [third wave], so it is no surprise that most fourth waves are sideways. Another characteristic of fourth waves is that they tend to retrace 38.2% of the third wave, this is why, when the FTSE dropped below the 38.2% Fibonacci retracement [5447] on Tuesday, we believed that wave iv (circle) was over, see chart.

Obviously it was not the bottom as prices decline further yesterday, the decline occurred on rising BTI, an indication that the move down is counter trend. The BTI is a sentiment indicator, in a bull market a FTSE decline accompanied by rising BTI is bullish.

As a result there is good reason to believe that yesterday's decline is still wave iv (circle) which extended to the 50% retracement. We have a complex correction [(a),(b),(c)] in which wave (b) is an expanded flat. Wave iv (circle) may be over, if not it will end near 5380. The next move should be wave v (circle), an initial target is 5620.

To learn more go to www.eyield.co.uk

eYield timing indicators

In my previous email I said "after a strong run the FTSE is vulnerable to a set back. Markets move in waves with predictable patterns. The current pattern is ending and our timing indicators suggest that the FTSE will pull back".

Today the FTSE is pulling back. Is it the beginning of a long term decline or simply a correction in the uptrend? It does not really matter except if you are a short term trader. We trade the short term trend, so the current decline provides us with an opportunity to take profits, we are not prepared to stay short because the FTSE may rally again.

But how did I know the decline was coming? Using eYield FTSE Timing Indicator, investors can anticipate a decline with a high degree of certainty, see chart.

When the indicator gives a sell signal the probability of a decline is 80% but this does not mean the decline will start immediately. The last sell signal was on 4 January, as you can see on the chart sometimes the market will continue to rise for a few days. I must warn you that the period July-August last year was not the best time to judge the indicator as the FTSE kept rallying.

In general markets do not move in a straight line, they tend to move up and down or sideways. This is when the indicator performs best.

To learn more go to www.eyield.co.uk

FTSE is overbought

After a strong run the FTSE is vulnerable to a set back. Markets move in waves with predictable patterns. The current pattern is ending and our timing indicators suggest that the FTSE will pull back, see chart.

Beside a positive 34-day BTI we assume that the bull market is still alive because prices made a new high yesterday, this latest move changes the wave count.

Instead of a fifth wave up we have a third wave extension. The rally from 5200 to yesterday's high is wave iii (circle) of 5, the move is clearly in five waves [(i),(ii),(iii),(iv),(v)]. Because wave (i) is longer than wave (iii) and wave (iii) can not be the shortest wave, wave (v) will be shorter than wave (iii). It's possible wave (v) ended yesterday, if not it should end in the 5540-5600 area.

Once wave (v) and wave iii (circle) are complete the FTSE will correct, this move will be wave iv (circle). An initial target is 5450.

To learn more go to www.eyield.co.uk