Good morning. Well the FTSE dipped a lot further than I was expecting for yesterday’s session turning into a bit of a trending day. I was a bit loathe to hop on a short though as the other indices I was watching – S&P and Dax – failed to drop at all, usually a sign that something isn’t quite right. Sure enough the FTSE hit the bottom of the 10 day Raff when I sent out the email to members and then climbed back. That said, I have said a few times in the past few weeks that I was expecting a dip to 6600 before the Santa Rally kicked in, question is, is this it starting early or just the usual “buy the dip” as the bounce did start when the US came online, and as we know they only know how to buy at the moment! I wouldn’t be surprised to see another dip yet though. The warning sign yesterday was a very bullish press, reporting the decent news flow and Carneys comments. Talking of which he has reworded the interest rate future slightly saying that unemployment hitting 7% isn’t THE catalyst for putting up rates, but merely the trigger point where they will consider it.
New Fed chairman Yellen secured the future for more QE with her comments yesterday, basically saying the US economy is still struggling and stimulus will be maintained. I’ll still stand by my end of Q1 2014 for any sort of tapering as I have been saying for months. Announce in March, start tapering in April is what I am thinking.
Asia Overnight from Bloomberg
Asian stocks climbed the most in four weeks while metals gained after Federal Reserve chairman nominee Janet Yellen signaled stimulus will be maintained until the U.S. economy improves. The yen approached a two-month low.
The MSCI Asia Pacific Index added 1 percent at 3:07 p.m. in Tokyo as Japan’s Topix Index rose 1.2 percent. Standard & Poor’s 500 Index futures were 0.3 percent higher after the underlying gauge increased to a record in New York. The yen weakened 0.4 percent to 99.61 per dollar and lost against 16 major peers. Silver jumped 1 percent from a three-month low and copper futures advanced 0.6 percent.
The U.S. economy and job market are performing “far short of their potential” and a “strong recovery” will ultimately enable the Fed to reduce its stimulus, Yellen said in testimony prepared for her nomination hearing today. Japan’s economic growth slowed last quarter while Finance Minister Taro Aso said it’s important to have intervention as a policy option. Data today may show slowing expansion in the euro-area economy.
“The market’s worry about the inevitability of tapering will be eased and that may be enough to buoy markets in the Asian region today,” Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne, said by phone. “We know she’s dovish given her history and we’d expect that she will be very accommodative in talking about the U.S. economy.”
A “strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Yellen said in a testimony that will be delivered to the Senate Banking Committee. “Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”
The Federal Open Market Committee will probably taper its bond buying to $70 billion at its March 18-19 meeting from current pace of $85 billion a month, according to the median of 32 economist estimates in a Bloomberg survey Nov. 8.
The S&P 500 Index (SPX) rose to a record yesterday, led by retailers on holiday shopping. Cisco Systems Inc. (CSCO), the world’s biggest maker of computer-networking equipment, dropped 11 percent in after-market trading after first-quarter revenue trailed analyst estimates.
I was a bit wary of really going for the long at 6620 as it felt so risky after the fall, but sure enough the 20 day Raff channel came good as per that email I sent round to members, chart shown below. Last time it retraced to pretty much the 61.8% fib line the next day, so if it was to do the same again, that’s around this area as I write at 6680. There is a chance that we will actually recover further though towards 6735 which is the top of the 10 day Bianca channel for today as well as having a fairly major ProTrend resistance line there too on the daily chart (its actually at 6722 so around that area). Its feels a bit early for the Santa Rally to really kick in just yet so we may get a dip towards yesterdays close at 6630, though for the open the EMAs are still positive and I expect we may hit the 200ema at 6694. There is also a downwards sloping ProTrend resistance line 6703, so a small, slightly risky short at this area may be fruitful for a dip to the pivot and yesterdays close.