End of the month and we have quite a bit of data to interest us this afternoon with the US GDP at 13.30 the Chicago Purchasing number at 14.45 and the Oil inventories at 15.30.
There might be a natural desire to offload positions into the week as we enter the dreaded ‘October Effect’, memories are long in the City and as with May there is always a certain nervousness over Autumn as most of the big historical falls have occurred in the eerrr…. Fall.
This having been said it would be a brave man who actually decided to go heavily short at this juncture as virtually every indicator you care to mention is pointing robustly north.
Oddly enough, for the first time since we have been trading these levels our clients have actually started to buy the highs. So far this month every time the FTSE has gone above 5150 the sellers have crept out of the woodwork and the ensuing drops have paid off with buyers returning as we approach 5100 or go beneath it. For some reason this morning has seen a reversal of this normal phenomenon with buyers seemingly confident that the rejection of weakness on Monday presages a new bull phase.
The FTSE is opening pretty much unchanged at around the 5165 level and the resistance remains (naturally) at above 5175 up to 5200 as the highs of seven of the last nine trading sessions have been in this range. The support levels are rather further away with the first reasonable one being 5095 – 5105 and then 5045. With nothing really to go for this morning we might expect to drift until the US session.
After our comments yesterday at the major resistance between 5750 -5760 the Dax had yet another abortive attempt at the range failing once more bang in the middle of it at 5757 before immediately reversing back down to the 5700 level. Even though the level was rejected it must be noted that we are still within striking distance of it and continual attempts are likely to eventually lead to a break through (assuming nothing else happens first) but if there is a pull back it could be very violent indeed.
The BOE managed a bit of a bounce in sterling by failing to mention that a weak pound was good for the economy and by calling a load of teenage scribblers in for a meeting (that was rumoured to be about negative interest rates on funds held by banks with the BOE) but eventually turned out to a fireside chat explaining about Quantative Easing. I, for one, am in the doubters camp over QE. Other currencies that have not indulged in such actions have also seen the credit crunch effect fade away and I fear that all the BOE is doing is handing vast sums from the Treasury to the Investment banks. Once QE finishes and the BOE stars to offload all of these expensively purchased bonds we may find that much of the Equity rally has been built on a tidal wave of cheap money (where have we heard that one before) and on the natural desire to be invested somewhere when cash rates are so unattractive. As mentioned many times in these comments our lords and masters seem to be forever attempting to keep growth going at the cost to future generations. Rather than take the harsh medicine now Politicians and Central Bankers seem to be colluding in buying one more ticket for the Fun Fair.
Sterling has now recovered from the lows versus the Dollar of yesterday morning and has bounced exactly 300 pips to the current price of 1.6075. There is solid resistance at around 1.6110 but if we recover above this we will be back in the trading range that has dominated activity over the last three four months. The attempt to move lower might be considered an abortive one as with the attempt to move higher at 1.70 a few months ago. In our view this is a difficult argument to make as, while we are recovering versus the Dollar, this is mainly due to the greenback’s weakness. Versus the Euro and Yen the currency is still looking very weak indeed.
Clients remain buyers of virtually all asset classes from Gold to Oil to Equities and Indices. With the trends being your friend this is a difficult action to disagree with but traders should still keep a weather eye on things as confidence still appears fragile.