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.

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