6726, 6694 Support, 6769, 6805 Resistance

Good morning. Well, what a day yesterday with quite a rout on indices in the end. Yet again another trending day as a bit if panic selling happening, which unfortunately just carved straight through the various support levels. There is the worry from investors that this dip is the start of a severe pullback which will be around the 10% mark. Later on last night the drop did bounce a bit from 6710, where we have the new bottom of the 20 day Bianca channel (6712). The Fed releases their minutes later today which may shed some light on interest rates.

Asia Overnight from Bloomberg
Asian stocks fell, with the regional index heading for the steepest one-day drop in two months, as global equities drop amid concern valuations are too high. The yuangained to a three-month high and copper fluctuated after Chinese inflation data came in close to economists’ estimates.

The MSCI Asia Pacific Index lost 0.7 percent by 12:35 p.m. in Tokyo, as all major benchmark indexes in the region retreated. Hong Kong’s Hang Seng Index slid 1.3 percent as casino operators and developers dropped. Standard & Poor’s 500 Indexfutures were little changed. The yuan rose as high as 6.1940 per dollar. Copper swung between gains and losses as zinc declined from a 35-month high.

Consumer-price inflation in China slowed last month, data today showed, while a measure of factory-gate prices fell by the least in more than two years. Indonesians vote for a new president today. Global equities are retreating after total world market capitalization hit a record $66 trillion last week. Internet stocks including Twitter Inc. drove U.S. declines yesterday on concern they have risen too far too fast, while minutes of the Federal Reserve’s June meeting are due today.

“Investors are still skeptical about China’s recovery,” said Benjamin Tam, a fund managerwho helps oversee about $1.5 billion at IG Investment Management (Hong Kong) Ltd. “Today’s data isn’t showing significant improvement, and shows demand is still weak. Hong Kong shares are reacting to weakness overnight in the U.S. market.”

The Asia Pacific gauge reached a six-year high July 7, trading at 13.5 times projected earnings for member companies, the highest valuation since December and above the 13.2 average multiple over the past year, data compiled by Bloomberg show. That compares with a valuation of 15.4 for the MSCI All-Country World Index, which fell 0.1 percent in early trading today, after reaching a record closing high July 3.

S&P
The S&P 500 dropped 0.7 percent to close at 1,963.71 in a second day of losses, while the technology-heavy Nasdaq Composite Index slid 1.4 percent, its steepest one-day decline since May. Twitter and Pandora Media Inc., which trade at more than 150 times projected earnings, plunged at least 7 percent in U.S. trading. The S&P 500 trades at 16.6 times projected earnings, above a five-year average valuation of 14.3.

Earnings Season
Three rounds of monetary stimulus from the Fed and better-than-forecast corporate earnings have driven the S&P 500 up more than 190 percent from a low reached in March 2009. The minutes due today are from the Fed Open Market Committee’s June 17-18 meeting, when policy makers trimmed monthly asset purchases by $10 billion for the fifth straight occasion, saying economic growth and the job market are improving.

Alcoa Inc. (AA) jumped more than 1 percent in after-hours trading as the company that unofficially kicks off U.S. earnings seasons reported sales and profit that exceeded analysts’ estimates. Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs, Yahoo! Inc. and Johnson & Johnson are among companies reporting financial results in the next week.

Profit at companies in the S&P 500 probably increased 5 percent in the three months through June, while sales rose 3 percent, estimates compiled by Bloomberg show. The forecasts are lower than they were at the beginning of April, when analysts projected earnings to rise 7.3 percent and sales to increase 3.7 percent.

“You’d be foolish to be taking any huge bets on markets,” Mark Lister, head of private wealth research at Craigs Investment Partners Ltd., which has about $6.8 billion under management, said by phone from Wellington. “I definitely think we should still be positioned for a pullback. Markets are pretty fully valued and we’re now probably moving into a more moderate period for growth and returns.”

FTSE Outlook

6738 is the initial resistance today and the bulls struggled to break that since the rebound from 6710 last night. The only support I have at that area is the 20 day Bianca channel, so I think it was the S&P bouncing off its 25EMA on daily that dragged it up mostly. Todays pivot is 6769 which will act as resistance at the next level, and if the bulls can break that it might halt this drop cycle and allow a move to 6805.

Not great trading so far this week as we have had 2 trending days which are not goof for support and resistance levels. It was so close to triggering the short at 6834 yesterday as well (high was 6833.3!) but then just steadily dropped all day. One thing I have learnt is that if you enter off a support (or resistance) and it doesn’t hold, and hits the stop pretty quickly, then chances are it will be a trending day.

If 6738 holds as resistance the next supports are 6726, 6712 (Bianca 20 day channel bottom and near last nights low) and 6694.

The talk has already started after 2 days of falls about this being the start of the correction but I have a hunch we will see a bounce before that. There is a Bradley turn date for the 15th July which may have come early of course, though looking at the daily channels on S&P, Dax and FTSE, we do have some support still. The problem with trying to go long on a rapidly falling market is the same as trying to pick a decent short entry, sometimes it bounces from some random looking area!

So, today, I think a small long at 6726, and a bigger long at 6695. A short at 6747 and possibly 6766. We may even be brewing a 30 minute EMA cross to bull – the first change of stance this week!