As speculated yesterday the 10570 region proved too be just too much for the Dow and, in a quiet session with just 35 points covering the entire day, 10580 (or thereabouts) was the high. The late sell off in the last half hour, all of 25 pips, has seen some minor follow-through overnight but the bears seem to be as impotent as the bulls just at the moment. Support, mentioned yesterday, between 10470 and 10520 has not really been tested either and we will probably be looking for some impetus from the last major US data release of the year at 14.45 with the Chicago PMI number.
The news that the high street stores had the best trading day of the year on Monday and that sales were overall up some 18pc on last year might have been expected to give the retail sector a bit of a boost but such did not prove to be the case. The rally expired early on and the index eventually closed just 0.3pc to the good and most of this was from Tesco which represents 44pc of the entire sector.
Banks also had a grim time of it being pretty much flat on the day and giving one of the worst performances of the entire 350. The whole rally over the last month or so has taken place with little help from the financial sector (which has actually fallen significantly) and, for those who like history to repeat itself, this was actually the scenario in 2007 when the last rallies to the highs took place whilst the banking sector was falling (check it out). For those bears still out there this might be a crumb of comfort as, in reality, stock markets will find it increasingly difficult to rally in the face of a weak financial sector. Without strong lending economic expansion must take the form of organic growth and, sorry to say, it is difficult to see this helping much in the UK once the Bank of England stops printing money (sorry, a slip of the keyboard…I meant… ceases to buy Bonds through Quantative Easing)
The FTSE is holding steady above 5400 and in the short term the Bulls will be hoping for a year end dose of window dressing or at least a spike higher on the first trading day of 2010 (4th Jan). it might seem strange but the first day of the year nearly always sees an up day even when the general trend is quite bearish. The is some support at 5415-5420 and then 5375 to 5400 (as you would expect) to the up side the only obvious resistance is 5440 to 5445, as this proved to be the trading highs of yesterday. 5500 is a nice round number and proved to be a support and resistance level back in 2005/2006 so will probably prove to be a target/resistance level again but 5615 to 5640 is the next longer term target for the chartists.
As speculated in yesterday’s comment the Pound continues to be the whipping boy in the absence of anything else to do and yesterday’s session was no different with confidence in Sterling seeming to suddenly evaporate after an early rally to 1.6070. The Cable cross then proceeded to slump 200 pips to a low of 1.5865 before managing a small rally back to 1.59 which is where we remain today. As mentioned 1.5930 was support and its failure now means that it may well act as resistance to any move back up but the Pound has threatened to collapse several times since it rallied back in May only for buying to hold steady in the high 1.50’s. The fall through December versus the dollar looks to have more solidity to it though so traders should beware taking too strong an opinion that the same supports will hold.
The Dollar Yen battered against the 91.80 resistance level (mentioned in our comment) for much of yesterday’s session before breaking through late in the European action. The immediate reaction was to take us up to 92.00 and then an attempt to push back below 91.80 was beaten off in the evening trading. We remain at 92.00 this morning after an attempt higher reached 92.25 in the early hours and traders are long looking for further dollar gains. This said we must beware a move back under the 91.80 level as this might indicate a false break out.
Oil has remained steady through the night at the new levels close to the 79 to 81.50 resistance. We have the Inventory numbers out this afternoon at 15.30 from the US which might prove to be interesting. We are going into the data on a very strong footing so a weak number might well spike prices up into the $80’s. This said trading over such releases is for those with money to burn.
Gold continues to weaken in the glare of other attractions and the ongoing dollar rally. Punters are starting to get slightly more nervous but we have seen additional buying below $1100 so there is still belief out there that the Gold Bugs will win the day. Although if the big hedge funds (rumoured to be massively long of the Yellow Metal) start to offload there might be a bit of fun and games! Support remains at 1070 and 1050 and resistance at 1112 as per yesterday.