6643, 6613, 6583 Support, 6690, 6710, 6787 Resistance

Good morning. Well, just when you thought the PIGGS had gone to sleep, up pops one of them again, Portugal this time and one of their banks, Banco Espirito Santo. I imagine those that needed to know about this little problem knew on Monday hence the trending days we have seen. However, once out in the open the US wasn’t going to tolerate a -170 Dow opening so recovered pretty well yesterday. Question is wether this is a small problem or the start of something bigger. It still looking pretty weak at the moment across the board, and the bulls will need to break 6710 to stop the rot. If they manage that then 6787 looks possible. On the FTSE, Dax and S&P there are some close resistance levels which if broken, will break the downtrend of this week (6710, 9700,1970 respectively).

Asia Overnight from Bloomberg
Asia’s benchmark stock index headed for its first weekly loss since May 9, the cost of insuring bonds in the region climbed and the yen maintained gains with gold amid concern that Europe’s debt problems haven’t been resolved. South Korea’s won fell a sixth day.

The MSCI Asia Pacific Index lost 0.4 percent by 2:07 p.m. in Tokyo, poised to snap the longest streak of weekly gains since March 2012. Standard & Poor’s 500 Index futures were little changed. Asian credit-default swap prices headed for the biggest weekly jump in four months. The Australian dollar weakened 0.1 percent versus the dollar as the country’s three-year bond yield touched the central bank’s cash rate for the first time since August. The won slid 0.6 percent, the yen traded near a seven-week high and gold was close to its priciest since March.

More than $1 trillion has been wiped from the value of global stocks since a peak on July 9 amid concern that the Federal Reserve may increase rates sooner than previously thought and as European bonds tumbled after a parent of Portugal’s No. 2 lender missed a debt payment. Investors are awaiting testimony from Fed Chair Janet Yellen next week after minutes from the bank’s June meeting showed policy makers are concerned that markets may be complacent about risk.

“The very benign attitude to risk that we’ve seen in markets recently was an accident waiting to happen,” Chris Green, director of economics and strategy in Auckland at First NZ Capital Ltd., said by phone. The Portugal situation “is not a sufficient enough of a catalyst to provoke a significant reassessment but it is a shot across the bow. It highlights the risks inherent in the euro zone’s vulnerabilities.”

S&P
The S&P 500 dropped 0.4 percent to 1,964.68 yesterday after sinking as much as 1 percent in the earlier part of the New York day. The benchmark gauge is down 1.1 percent this week, set for its steepest weekly retreat since April. The Russell 2000 Index of smaller companies ended the U.S. day down 1 percent, paring a decline of as much as 1.9 percent. The value of global equities climbed to a record $66 trillion last week, data compiled by Bloomberg show.

“People will shoot first and ask questions later when news like this hits,” said Lawrence Creatura, a fund manager at Federated Investors Inc. in Rochester, New York. His firm manages about $363.8 billion. “The concern of an event like this is always determining whether it’s occurring in isolation or whether it’s the first domino. It’s a classic flight to safety across the equity, commodities and bond markets.”

Shares Suspended
Shares of Banco Espirito Santo SA were suspended yesterday after sliding more than 17 percent, while its bonds sank to record lows even as Portugal’s central bank said it can avoid contagion risks. Espirito Santo International missed payments on commercial paper to “a few clients,” according to a July 8 statement. The company is the biggest shareholder of Espirito Santo Financial Group, which owns 25 percent of the bank. Trading in ESFG shares and debt was also halted yesterday.

Portuguese bonds retreated for a fourth day, with yields on 10-year notes up 21 basis points, or 0.21 percentage point, to 3.97 percent yesterday. Ten-year Italian yields rose six basis points to 2.94 percent and Spanish bonds due in a decade yielded 2.82 percent, up seven basis points. The Stoxx Europe 600 Index tumbled 1.1 percent to the lowest level since May. The gauge is headed for a weekly drop of 3.3 percent, in what would be its biggest decline in more than a year.

FTSE Outlook

FTSE 100 Forecast
FTSE 100 Forecast

With the US helping matters the FTSE managed to pull away from its low of 6643 yesterday to nearly reach 6700, so 6643 is support today, and further weakness below that targets 6613 and even lower at 6583. Todays pivot point is 6680 – we are just above this as I write this so if this holds as support then the bulls can push on for 6690 and 6710. The latter needs to be broken if the drop is to end, and we can potentially get a rise to 6787. If the Portugal issue is just a storm in a teacup then I think that we will still get that further rise before a bigger fall. I am sure that with all the trillions that have been pumped into the markets over the past 6 years will not to have been seen as wasted or for that strategy to be a monumental waste of money so governments will be keen for normality to return and stock markets to recover.

I got told an interesting statistic yesterday and that in the years that Germany has won the football World Cup the S&P has been 9% lower 3 months later….. So, bulls will be rooting for Argentina, as after they won in 1986 the market went up! How bizarre is that for statistics!

Anyway, onto today. Its Friday, we have some fairly wide levels to watch. I think a short at 6710 should be good, probably only the first touch. The trend is down and that should be a decent short entry point. I will have a tight stop on that as if it breaks then the downtrend is probably ending and we will rise to 6787. A long off the pivot first thing looks like a decent initial play. Being Friday I use lower stakes as they can often be a bit harder to predict. If we drop from 6710, the bottom of the 20 day Raff and yesterdays low at 6640 would be the next major support, and from there we either bounce and break 6710, or drop even further. I fear the latter, and hope for the former.

65 Comments

          2. Any short today, it would probably be at around 13.30-15.00 when Dow reaches at least 16995-17000 (their R1). Dow is above pivot now and more likely to push to 995 at the moment.

    1. As for me, 1 more wave up is missing, so I’d rather wait for it till around 13.-14ish if I am to trade to day. Not sure. Had problems with internet yesterday, trying to be cautious today.

  6. FTSE/1 hr. pretty flat since about 16:00 yesterday — just showing signs of turning up now I think — but slow!

        1. That’s what I mean, it’s difficult to rely on other people’s opinion as everybody got different experience. It may do, Senu, who knows.

  10. Senu
    I am going take a leaf out your book and bank tonight as never know what the weekend will throw up but Dow looks set to punch up through 17000.
    IMHO its all pointing up

    1. That’s much better, Senu. You can book 10 points already. Well done.
      I am off for now.

  15. Just added another long on the Dow at 16927, and brought all my stops up into credit.

  20. had moved my stop to break even and so now out of short position on fuse. now short on dow.

  22. Oh well stopped out in profit didn’t turn out as I thought, good run but teaches you not to be greedy.

  23. ok closed all positions. I think there is still more downside but ended week in profit. cheers. good luck.

  24. Uff, just got back, missed the short. Still hoping for a bounce to 16900 for another short try. But it could be the short is over for today. It shows 61.8% retrace of yesterday’s rise. Could be a pretty good bounce right now. I will see what’s happening.

    1. I should be rushing in this short at 13.13 when I was happily out to town. I had urgent things to do so could not miss it. Now it’s a bit too late somewhat. Feels like a long retrace before another attempt.

    1. There’s no certanty in this business. It may sideway till Monday and try another top etc. etc.

  27. yes senu I was short in dow and sp500 before the open and closed both positions at 3pm.

  29. Very tempted in going long on sp500 now. But hate opening a position just before weekend.

  32. But I’m having difficulties to understand what he means by :
    Overall performance rank for up/down breakouts (1 is best): 23 out of 23; 13 out of 21

  33. None of it makes much sense to me……hence I don’t get too dependent on charts. Fundamentals still matter….only they provide direction….charts good for entry and exit points.

  34. I do follow charts and patterns and was trying to understand that statment . Can anyone tell me if I’m right on that statment interpretation ?

  37. Morning. No Senu I didn’t as you never know what would happen on weekend. But long this morning from 6708

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