Related Topics
European Markets , Stocks , Investing
Share This Page         

This is Why We're Skeptical of the FTSE Rally (Part 1)

New insights from European Markets Expert Brian Whitmer

by Alexandra Lienhard
Updated: July 13, 2017

Brian Whitmer, the editor of our European Financial Forecast and contributor to Global Market Perspective, tells you why you may not want to hang your hat on the latest rally in British stocks.

Watch part 1 of this new interview for a sneak peek of what Brian covers in his latest, July European Financial Forecast. And be sure to check out Part 2 here.


Alexandra Lienhard: Today on ElliottWaveTV, I'm talking with Brian Whitmer, who edits Elliott Wave International's European Financial Forecast and contributes to the monthly Global Market Perspective. Hi, Brian. It's been a while.

Brian Whitmer: Hi, Alex. Nice to see you.

AL: Now the FTSE's been rallying, generally speaking, on a consistent basis since the low in 2009. But you believe that this is the end of a move, not the beginning. Why is that?

BW: Yeah. Well, I mean, wave analysis is a little bit different than conventional forecasting, because we're not really looking solely at the size of a move or we're not looking at the duration of a move, we're looking at patterns. An impulse wave or a real bull market has a certain underlying pattern. It's five waves. It makes progress in the one larger degree trend. And those waves typically don't overlap. A correction, on the other hand, is different. It's three waves. Those waves overlap. And that works to interrupt the progress that was made in the previous bull market. So when I look at the FTSE, to answer your question, the entire structure, really over the past two decades, just looks very corrected. So if we pull up a chart of the FTSE, this goes back to the 1999 high, which I'm calling supercycle wave three. We've got an A, B, C correction. I'm calling this a cycle degree wave A. And this whole pattern is just choppy and overlapping, especially since the 2009 low. If we look at this area in here, this is probably some kind of triangle. Then we came out. We had a thrust out of that triangle. But then this whole decline here overlaps all this area. So this broad pattern, it does not have the look of a new bull market. It has the look of a correction. And that's why I've been skeptical about this rally for some time now.

AL: And just as important as the UK is Germany, especially recently given the spotlight on the G20. Now the rally there looks a lot more impulsive, doesn't it?

BW: Yeah, you're right. The DAX looks impulsive since March, 2009. We can see a five-wave structure since then. And I think what's important is just how extended this rally has become, especially over the last year and a half. And I've got a chart showing that. This is the DAX back to the February, 2016 low. I'm calling that a wave four. And we've seen this massive plus 50% rally in just a year and a half. But now impulse waves follow a specific pattern, also. Typically what we see in impulses during a first wave, that's sort of a rebound off of a low. You can think back to March of '09, late '09, early 2010. That was a rebound off a low. There was a lot of skepticism in the market. People didn't really know whether the financial crisis was over. As more people come into the market, the third waves typically see the highest volume, the highest breadth and momentum. That's when everybody is getting into the market. And then by the time wave five comes around, which is where I think we are here in the DAX, the market's extended, the fundamentals are starting to weaken, and that's what occurs into a high. And I think we're seeing that now in the DAX. I'm just showing a 21-day rate of change here on the bottom. We've seen that subtly weakening momentum as this rally has progressed. So I think that's a good indication that we are in the late stages of this rally.

AL: And now Brian, a market principle that's commonly held is that if financials and banks are not leading or market performing versus the broader market, it's a huge warning flag that the market should not be trusted. Do you agree?

Get and Stay Ahead of the Investment Herd in 12+ European Markets Now

European Financial Forecast Service gives you an unconventional yet accessible look at European markets. It provides the analysis you won't get from mainstream "experts" on either side of the pond. As a result, it keeps you ahead of both near- and long-term trends, so you're prepared for risks and opportunities on all time frames.