Rather a dull morning looks to be in the offing first thing today with no economic numbers out of the UK and Corporate numbers so far not putting a cat amongst the pigeons.

The FTSE continues to bolster itself at the higher end of the trading range and the bulls can almost be seen sharpening their knives looking for another push to the upside.  Unfortunately for the early players yesterday the US rather rained on the parade in the afternoon in revealing weaker than expected consumer confidence numbers.  These were starkly at odds with corporate numbers which were once again on the top side of expectations.  The point being, of course, that the consumer confidence number is a ‘look forward’ piece of data and corporate results are … well… a tad historical.

As mentioned yesterday support in the FTSE is at 5340/50 and so long as we can remain above this point the bulls will probably be gaining in confidence.  What they do not want to see is for the markets to slip back into the old trading range of the last few months.  The US markets as mentioned have not really helped much as the resistance at 10590/10600 in the Dow was not even seriously tested in yesterday’s session and the FTSE is unlikely to get much further traction unless the US goes along for the ride as well.

A bit of common sense seemed to infiltrate the BP price yesterday as investors did indeed look beyond the spill horizon and did not like the view.  As mentioned in yesterday’s comment it will be a brave authority which gives BP deep water drilling permission and politicians are unlikely to put their neck on the line for an unpopular corporate.

On the other hand Banks have seemingly scooped the pool in being top of the class in the stress test exams.  Bank stock is now within touching distance of its post crisis highs and the UK ‘taxpayer’ (sic) is now in a profit on its intervention on a straight equity valuation.  When you add in the penal rates that the banks were being forced to pay for much of the liquidity provisions of one form or another the profits are now reaching ..ummm.. ‘obscene’ levels.  The stress tests are coming under some scrutiny but it is unlikely that anyone will want to rock the boat too much as a few years of possibly ‘false’ security are needed to reach a position of ‘real’ stability.

Currency markets are stuck at the highs with Cable pushing briefly above 1.5600 and the Euro continually probing above the 1.3000 mark.  Our clients are trying to oppose the moves higher and this is probably symptomatic of the moves higher with weak shorts continually being squeezed and driving prices higher therefore squeezing new shorts etc etc.  At some point the elastic band effect will run out and there will, possibly be a sharp correction but with no definite ‘spike’ higher, which normally signals the top of a move, in evidence the Euro and Pound seem happy to drift ever upwards versus the Dollar.

The big mover yesterday was Gold which broke through the massive support at 1175/78 mentioned yesterday. The reaction was pretty much immediate and the Yellow Metal slumped to 1157 at its lows.  The trend line break is quite important to technical traders as it might indicate an end to the last two years of acceleration rally.  The longer term uptrend support is miles lower than current levels and longs will be concerned if yesterday’s falls get further confirmation today.  Current prices are at 1162 and we are seeing increasing buying from all sides as our clients continue to go along with the bull story.  There is a support level at between 1154 and 1158 but buyers will be hoping that we return above the aforementioned 1175/78 in the very short term.  As mentioned earlier this week the repo rates are effectively negative with December Gold almost 2 bucks above spot prices which might indicate that there are a lot of longs out there.

Oil has suffered in line with the consumer confidence number and the 79/80 resistance has once again proved solid.  Longs will be hoping that the pull back is only temporary but the fear is out there that we are just going to repeat the last move higher which petered out at $79.50/80.00 and then fell back to the low 70’s.

Last Updated: July 28th, 2010