The Cac, Dax and S&P have all held onto the new ground this morning leaving the FTSE and Dow still just under the highs of last month. With year end buying looking more likely bears are getting slightly more circumspect but we are still seeing general selling above 5350 in the FTSE as we have done every time we have reached this level over the past two months.
It is actually quite difficult to disagree with this activity as, until a break is actually achieved, selling at the range highs has proved very successful over the past couple of months (as has buying below 5200 for that matter). Major Resistance remains at 5375 to 5400 and minor support is now at 5335 and 5300. This having been said sellers must beware an attempt at the 5400 level as volumes are likely to fade away for the rest of the year making a sudden shift in one direction or the other easier to achieve. With the pressure currently to the upside this might be seen as the easier option for an assault as weak shorts may come under pressure to cover on a rally.
The FTSE has come in 20 points higher at 5348 reflecting the activity over night and in late evening trading yesterday. The Dow, at 10485, is holding on to the steady grinding rally but has also faded when attempting 10500 in early morning action today. While the Dow has managed several intraday breaks of the 10500 level it has consistently failed to hold on above this mark. As with the FTSE we tend to see selling pressure at these levels and, so far, the bears have had the upper hand at the highs.
In the currency markets the dollar continues to gain ground against the other majors as the general US economic situation seems to improve in relation to Europe, Japan and the UK. The Euro has now fallen below 1.4300 to 1.4255 and we can see good resistance above here at 1.4335, 1.4380 and 1.4450. Support is at 1.4180 but there is good volume support and resistance all the way between 1.4180 and 1.4330.
Sterling remains weak, in general, although well off the lows versus the Euro. Cable has now fallen to 1.5950 below good support at 1.5975 but at the moment there appears to be little follow through selling. For Sterling bears the next target is 1.5800 and then 1.5725 if we breach this support then the top of the previous trading range at around 1.54 may hove into view.
On the equity front the banks have taken it on the chin recently as future profitability is constantly being attacked in the form of regulatory requirements and government expectations. The regulators are looking for far greater capital cover (which will impact earning power) whilst at the same time the politicians are urging ever increasing lending to help kickstart growth. Of course these two aims are entirely incompatible but in either case the banks will probably be on a hiding to nothing. Back in April I estimated that Barclays (at the time around 240p) was probably not worth much above 275p. So it is slightly relieving to see it back at this level (albeit after hitting 390p in between times!). With Euro zone economists forecasting even more massive capital raising requirements for the European Banks it is easy to see why the sector has been under severe pressure even as the FTSE has rallied up to the highs. It is not difficult to speculate on more sensationalist headlines about the taxpayer bailing out the banks as the State takes up its rights in any new issues for Lloyds and RBS. The later is now back at 29p and the charts are uniformly bearish. If new capital is required we may actually find shareholders being effectively wiped out (yet again).
With the appreciating dollar Gold is continuing to slip day by day. There is good support at 1072 and massive support at around 1050 the latter being the medium term bull trendline level. If the Dollar maintains its drive we may find this critical level under attack, while the major long term trend is much lower (at around 750 dollars) gold longs would be very concerned at a pull back that threatened the 1050 level. The current price at 1085 is still some way from this point but these days a thirty dollar move is not unheard of. The bulls really need some momentum to regain the upper hand but at the moment this is not apparent. This having been said we have seen some pretty hefty pull backs in the overall rally. The biggest being in 2008 when we fell from a high of 1030 all the way to 680 before buying was resumed. On this scale the recent 140 dollar fall is quite minor!
Oil is holding onto the $75 area (the oft mentioned OPEC price target) and it is difficult to see a break in either direction just at the moment. The range can be said to be quite wide at the moment though with support at 72.80 and resistance at 75.60