6811, 6792, 6748 Support, 6831, 6834, 6844, 6876 Resistance

Good morning. What an exciting day yesterday – after hitting the short level at 6828 it spent the next few hours doing….. nothing! Interestingly though the S&P has dropped back below the 2000 and the Dax off the 9595 area mentioned in yesterdays email, whilst the FTSE has done nothing. With resistance quite close at 6831 and 6836, its not going to take much bear to break through the supports which we are also on – 6825 pivot and 6811 bottom of the 10 day Bianca channel. Looking at Asia dipping a bit overnight, gold rising and the Dax and S&P also dipping one would tend to favour the bears to have a go.

Asia Overnight from Bloomberg
Japanese and Australian bonds advanced, extending a global rally, while Asian stocks fell. The U.S. dollar weakened against most peers and gold climbed.

Bond yields from Spain to Germany reached all-time lows yesterday amid speculation the European Central Bank is preparing to boost stimulus. Russia said it was watching a build up of NATO troops near its border while the U.S. said Moscow may be directing separatist rebels in Ukraine. Chinese industrial-profit growth slowed to 13.5 percent in July, data today showed beforeGermany reports on inflation and the U.S. updates markets on economic growth.

“The global bond rally has gone a long way in quite a short period of time, obviously driven by Europe and increased speculation over measures from the ECB,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “A discussion over both timing and what exactly those measures are going to be has dominated markets and set the tones for all markets globally.”

Yields on 10-year Australian bonds fell a fourth day, declining to 3.29 percent. New Zealand bonds due in a decade yielded 4.10 percent, down three basis points, or 0.03 percentage point. Ten-year Japanese government notes climbed, with the yield falling to 0.485 percent, the lowest level since April last year.

Spain, Italy
Similar-maturity Treasury rates were little changed at 2.35 percent, after dropping four basis points in New York, while yields on 30-year debt held at 3.10 percent following a six basis-point drop yesterday to the lowest level since May last year.

Rates on 10-year bonds from Spain, Italy, Ireland and Germany dropped to records last session as data showed French factory confidence fell to a 13-month low and a measure of German consumer sentiment slid more than analysts predicted. The reports fueled bets ECB President Mario Draghi may introduce quantitative easing to stimulate growth and ward off deflation.

“Although the Bank of Japan and the Fed will move sentiment in markets globally, we are watching one bank and one bank only: the ECB,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., wrote in an e-mail to clients.

Europe Inflation
Euro-region inflation numbers are due tomorrow, with policy makers next scheduled to review rates Sept. 4. The extra yield on Treasuries over their Group-of-Seven counterparts was 79 basis points yesterday, near the widest margin since June 2007.

Federal Reserve Chair Janet Yellen, who is already paring back unprecedented U.S. stimulus measures, said on Aug. 22 that while slack remains in the labor market, the timeline for rate increases could be brought forward under the right circumstances.

An auction of $35 billion in five-year Treasury notes yesterday drew the highest demand in more than a year from an investor class including foreign central banks as the debt yielded nearly the most in nine years over its German equivalent. A two-year auction earlier in the week drew close to the highest yield in three years amid prospects the Fed may raise interest rates from zero sooner than investors predict.

Regions
The Topix slid 0.5 percent, poised for its biggest decrease since Aug. 8, with almost two shares falling for each that advanced. The Nikkei 225 Stock Average sank 0.6 percent. The yen rose 0.1 percent to 103.75 per dollar after gaining 0.2 percent yesterday.

South Korea’s Kospi reversed an earlier gain to fall 0.1 percent. Samsung Electronics Co. added 0.7 percent.

Hong Kong’s Hang Seng Index increased 0.2 percent, climbing for the first time in three days, while a gauge of Chinese companies in the city fluctuated. The Shanghai Composite Index slid 0.5 percent.

China’s statistics office said industrial-company profits expanded by 13.5 percent in July after a 17.9 percent increase in June that was the fastest rate of growth since September last year. New home-sales data in Australia fell 5.7 percent in July, while the Philippines said second-quarter gross domestic product jumped 6.4 percent from a year before, exceeding the 6.1 percent median projection of economists surveyed by Bloomberg.

Ukraine
Fighting in Ukraine’s eastern regions is spreading to peacefully peaceful areas. A buildup of NATO forces near Russia’s border is unjustified and the country will do whatever is needed to ensure its safety from all threats, Interfax reported, citing Alexander Grushko, Russia’s ambassador to NATO.

Jen Psaki, the U.S. State Department spokeswoman, cited the reports of fresh fighting, telling reporters in Washington yesterday that “these incursions indicate a Russian-directed counteroffensive is likely under way in Donetsk and Luhansk,” cities in the east. Russian President Vladimir Putin’s spokesman, Dmitry Peskov, said that “this information doesn’t correspond with reality.”

The violence in Ukraine expanded a day after Putin met his Ukrainian counterpart, Petro Poroshenko, and hailed the talks as a step toward a political resolution. The government in Kiev said the fighting, which has claimed more than 2,000 lives according to the United Nations, has spread to the shores of the Sea of Azov, effectively opening a new front.

FTSE Outlook

FTSE 100 Prediction
FTSE 100 Prediction

I saw this article in the paper last night with the headline about a 60% market correction. Normally seeing things like that you would expect it to do the opposite for a little bit longer, and climb a bit before any major drops. Will probably be mid September before it gets very bearish! However, as I mentioned above it does look like it might be a little bit bearish today. We shall see. The S&P hasn’t really done much since dipping from the 2006 level, the Dax dropped off the 9595 area and gold is ticking ups bit. With supports close by on the FTSE with the pivot at 6824, and the 10 day Bianca at 6811, we may see a little bounce off that initially, but there are pretty strong resistance levels at 6831, 6834 and 6844, so I am favouring a dip for today, probably after an initial bounce off the 6811 support. If 6811 breaks then I can see it dipping to 6750 today.

If you are still holding 6828 short from yesterday, Id probably continue to hold, or enter new shorts at 6831/6835 area.

25 Comments

  1. ahahahah, the abbigail bear. That girl must have a lobby of somekind. She always come to media when markets are at record highs.

  2. just joined with a short @6805, am I too late? is this the drop before christmas? or just another summer short deep?

  3. IMO just a drop before new highs. Though I’m not looking to go long yet either, bears are in full flow…

  4. Short @6830 10times usual stakes from yesterday. But I really want 6850 before drop in September so I can load more shorts!

  5. Dow and s&p through all 3 supports and nicks 6810 level broken. If say it’s going to be bloody today…

  6. The bears having some luck, with Ukraine being invaded in the same day that markets are a bit overbought.

  7. Watching 1985 S&P for support, bounce to 2020 then bigger down mid/end of Sept – current big picture thinking from me

  8. Agreed Nick, there too many bears in the market to see a proper sell off. Not the best indicator ig stats but serves as a good representation and in particular too many sellers for US indices is too high.

    1985 seems a fair figure, would tie in with 6750 ftse and the 9370 mark for DAX.

  9. Ahwab see the Dax getting support at 9400 but depends on Ukraine and Russia look at the sell off it caused last time.

  10. As said previously I think we will finish the year pretty bullish around the 7000 mark. However certainly expecting next year to be bearish…..maybe not 60%….more like 15% as the 6 year bull run comes to an end due to rising rates.

  11. Sam

    Sorry I haven’t forgotten…..but had few problems with my fone. Can you send your email again please and I will respond.

    Thanks

  12. Javed, sorry but you are wrong about that relation high interest rates / bear market.
    If you look to history, is exactly the opposite.
    I should be more concerned when they start lowering interest rates. This means something is wrong with the economy.
    Because of this QE junkies, this bull market started earlier, but we have perhaps 40% of this bounce from the bottom was caused by the very steep sell in the 2008 crisis.
    So any high interest rates may cause a short term sell (markets never like high interest rates, causing nervous in the short term), but the trend should continue for maybe a secular bull.

    1. You have a very recent example in Europe with DAX, that started a bear trend, when Dragui lower even further the rates. Look at the relation between SPX and DAX.
      FTSE is in the middle of this war, causing this rangebound, not very sure where to go.

  13. I agree generally that low rates and QE mean that the real economy is in trouble. However it’s not necessarily the level of rates but the direction or more so change of direction that drive markets….

    Everyone knows rates will go up from here……the question is when…and even that is becoming a rather narrow period from October this year to March 15.

    The real unknown is by how much and it is that uncertainty which will cause a tumble I think. Only time will tell though…..the market is all about opposing opinions of course my friend.

  14. As good as the us figures were I don’t think we have seen end if temporary dip. US up’ing rhetoric with Russia and last 30 mins has seen NATO statement re. Troops there despite the Russians saying otherwise. Could be more bear tomorrow but so hard to trade I’m keeping my paper dry…

  15. Pms I can’t agree with your thinking of the bear trend when Draghi lowered interest rates… The reason that euro indices have sold off was a combination of geographical issue and nothing to do with interest rates… For any form of major sell there is a catalyst the start the sell off…. Condition that caused the sell deflation in euro Portuguese bank going to the wall Russia Ukraine this cause profit taking which then triggered a larger sell off in Europe, if anything the thought of QE from euro central bank is the driving force of the near 700 point rally in the Dax.
    As for the American markets higher interest rate will cause more normality less risk on… For share to go higher then company’s will need to show better earning simple if your money can earn more in the bank than in a more risky asset then share will suffer.

Comments are closed.