The blue chip index closed the week on a positive note, on the back of strong demand at lower levels, which emerged as some clouds of uncertainty started to get clear from the skies of global economic turmoil. While the markets were looking anxiously at the ECB’s meet and the plan of action from it, the Footsie underwent a decent textbook retracement from the recent intermediate highs, by the time news flows started to come, the index had not already positioned it for the move but also gathered enough momentum to fuel the next leg of the rally.
As we have been saying for quite a while now, that post a decent intermediate run up, there is huge demand waiting on the sidelines that could not participate in the rally and will be eager to jump on any correction, thereby not letting the gauge fall significantly lower. It was therefore very much visible that the first decline will be surely bought into; this is what exactly what turned out to be so far! , taking this analysis forward from here we see the momentum in the short run is supporting this rally in the index , which is backed by both fresh buying and short covering . There is a bullish engulfing candlestick posted on the weekly chart, which shows the renewed strength of the bulls once again back to work. In the very short term, market is likely to be favourable for the bulls and is poised for retesting the recent highs and even the possibilities of going past it remain open, therefore trade for the very short term traders remains a buy once this rally cools off a bit and gives some retracement to short term supports, however a stop loss below 5640 needs to be kept on long positions, while the targets of 5875 and 5950-75 can be expected.
Having said this, we recommend a different strategy for the medium term players. The FTSE is still trading below its long term down trendline; this rally is more of news driven rally in nature rather than a result of a value buying. The public participation has begun to surge once again near the upper end of the trading range on the back of hopes and only hopes that central banks will save this ship from sinking. As per our proffered Elliot Wave count, the index has already posted an “Orthodox Top “at 5876 in the month of August and this rally (which is a gradual shift of equities from the strong hands to the weaker hands) is a corrective rally in nature of the next degree wave, which may or may not breach the recent highs but will lead to a massive sell off eventually. This trend reversal will be confirmed once this short term rally gets over by the price action of the leading sectors and stocks that are expected not to lead the rally any more going forward and rather start forming intermediate topping patterns before the broader markets, while the laggards continue to take the sheen and greater fools continuing jumping in to them.
We therefore recommend positional traders and investors to start booking profits on the rallies near the previous highs, while avoid any fresh commitment to the markets at these levels, Only when there are signs of weakness starting to appear (which will be updated from us) short positions should be built for minimum expected targets of 5400-5450 in medium term.
William Albert Blog 
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