Every month or so we have these pull backs which everyone nervously watches for evidence that this is ‘the big one’ only for the bear impetus to dry up after a couple of sessions and the bull trend to reassert itself.
Markets bounced with almost contemptuous ease from the Friday lows but the rally to the highs yesterday was almost too easy to call for our clients who (having bought in to the weakness of Friday) were energetic sellers above 5340 in the FTSE yesterday.
The trading ranges in almost every major financial instrument (bar Gold) remain set in stone with Major Currencies, Indices and Oil oscillating around the same tired boundaries. Short term trading has never had it so good with markets obeying the chart supports and resistances on an almost daily basis. For the FTSE today we can see the 5305 support once again being the target for early sellers as it was last Thursday. Failure and success of this support/resistance level over the last week has defined much of the pivotal activity and we might see a repeat performance today. Overall sellers are still waiting for the ‘blowout’ move to the upside that might signal the final exhaustion move. Since March the moves higher have all been of the slow grind higher variety and the biggest daily move higher has barely beaten 120 points in all that time. For those who have been convinced that doom is only just around the corner the lack of any real drama is beginning to chip away at their convictions. Many of the market comments these days are for more of the same, as opposed to the almost universal bearishness that has gone hand in hand with the eight month rally.
Today’s supports and resistances for the FTSE are 5305 and 5275 to the downside and 5375 and 5395 to the up. With no important data out from the UK this morning we are not expecting much in the way of fireworks but the US has some GDP revisions and House Price data at 13.30 and 14.00 and then a few survey confidence figures at 15.00 to round it off. With thanksgiving taking away the last three days of this week (Thursday stretched from Wednesday to the weekend) over the Pond we are not expecting much for the remainder of the month.
Oil flirted with the top of the trading range at 80 bucks yesterday before promptly returning to 77.50 by the close. Clients are making hay with this particular market as the Nymex contract has traded the $77 to $80 range no less than 12 times in the last five weeks. We have pointed this out quite a few times recently (before we got anywhere near 12!) and many traders have been cautiously taking advantage of it. Of course we must always be aware that it will break some time but until then……………
Forex markets have also been unusually favourable with the Euro once again failing at the 1.50 level. Clients were quick to sell at the highs and remain heavily short at current levels of 1.4900. There are no prizes for guessing the target of around 1.4800-1.4820 for the bears as this has been (roughly) the lows of the last three attempts to the downside. Bulls will be hoping for a renewed attack on 1.5000 soon as the upward momentum of the last nine months has been looking a bit less powerful in recent weeks. The trend line support from the lows in March is currently at around 1.4850 (we bounced off this line on Friday at 1.4800).
Sterling continues to trade well versus the dollar but remains weak against the Yen and Euro. This is proving something of a problem for global contracts (which are generally priced in Dollars) in that the weak currency argument favouring Manufacturing and Exports is somewhat muted by the challenge from US and Chinese units (China’s currency is mainly locked versus the dollar). This means that both these economies, which grew strongly in the last quarter, actually now have a weaker exchange rate versus the Pound than at the start of the year! And we wonder why export manufacturing continues to deteriorate.
Gold remains the purchase of choice for many as a quasi dollar hedge versus the Yuan, Yen and Euro and this state of affaires is difficult to forecast and end of. The big players are monumentally long of the yellow metal which causes a rally all on its own (although you do sometimes worry that the big beasts only reveal their hand when they want to exit from it!).