Good morning. What a crazy day that was. A fall to 5600 then a rally to 5780, all the while the Dax only dropped 200 points, before rallying 400. Crazy and sometimes its better to just stand aside rather than try and second guess where its going to go. Dax probably held up in anticipation of the ECB todays and seeing what Draghi is going to say. Meanwhile, China’s central bank cranked up cash injections in its money-market operations for the third week in a row.
Market review for Wednesday
Wall Street has over the last few days repeatedly knocked any rally the FT100 has been building during the day and this happened again yesterday. With an open around 5760 the FT100 fell to 5700 then attempted to rally into the Wall Street open reaching 5725. Once the Wall Street bell had rung the markets dived on further weakness in the oil price with the FT100 touching 5650 before closing at around 5673 – down 203.22 points! In after hours trading the FT100 broke below 5600 for a short while before recovering to 5700 at around 8pm UK time. No one knows where the bottom is, however this could be the “Blow out” day that finally clears out the weak bulls … so maybe this was the low.
US & Asia Overnight from Bloomberg
Asian stocks gained, easing a selloff in global equities that brought the regional benchmark index to a three-year low, as crude oil advanced after plunging below $27 a barrel.
The MSCI Asia Pacific Index climbed 0.5 percent to 117.18 as of 9:50 a.m. in Tokyo. The gauge tumbled 12 percent this month through Wednesday, heading for its worst month since the depths of the global financial crisis in 2008. Global equities have fallen more than 19 percent from a record high reached in May, with Japanese shares plunging into a bear market as tumbling oil prices fed concerns over the global economic outlook.
“A sensible strategy is to buy through these periods of volatility in a number of stages since you can’t pick the absolute bottom,” Martin Lakos, Sydney-based strategist at Macquarie Private Wealth, said by phone. “There’s some very good value in the market particularly if you’re looking at earnings momentum. Ultimately sense will prevail and investors will focus on fundamentals. We’re not seeing the economies in China, U.S or Europe falling off the cliff.”
E-mini futures on the Standard & Poor’s 500 Index climbed 0.6 percent on Thursday. The U.S. equity benchmark index closed 1.2 percent lower at a 21-month low on Wednesday. A late-day rally paced by health-care and small-cap shares helped trim declines of as much as 3.7 percent.
March futures on West Texas Intermediate crude rose as much as 1.8 percent after losing 4.1 percent the previous session. The February contract expired Wednesday at the lowest level since May 2003 as energy producers turned gloomier on the prospect of a recovery this year. Energy shares had the biggest gains among industry groups in the MSCI Asia Pacific gauge on Thursday.
Oversold Signal
Investors are looking for evidence stocks have hit a bottom, as some market indicators signal the equities selloff has gone too far. The 14-day relative strength index for Japan’s Topix fell to 24.35 on Wednesday, below the level of 30 which some traders say indicates that shares will rise. When the measure slid to 24.4 on Jan. 12, the Topix jumped 2.9 percent the next day.
Japan’s Topix index increased 0.9 percent after slumping 3.7 percent on Wednesday. Both the Topix and the Nikkei 225 Stock Average lost 21 percent from their peaks through Wednesday. The Nikkei 225 last entered a bear market in June 2013, after plunging 20 percent in less than a month. The gauge soon rebounded, rallying 31 percent from its low on June 13, 2013, through the end of that year.
Australia’s S&P/ASX 200 Index rose 1.1 percent, after closing Wednesday near a 20 percent drop from last year’s high that would have met the definition of a bear market. New Zealand’s benchmark gauge slipped 0.4 percent. South Korea’s Kospi index added 0.3 percent.
China Futures
Markets in China and Hong Kong have yet to start trading. Futures on the Hang Seng China Enterprises Index slipped 0.9 percent in most recent trading, while contracts on FTSE China A50 Index lost 0.5 percent and those for the benchmark Hang Seng Index fell 1.3 percent.
Chinese stocks in Hong Kong tumbled on Wednesday to the lowest level since the depths of the global financial crisis as a slide in the city’s dollar spurred concerns over capital outflows. The Hang Seng China Enterprises Index plunged as much as 5.5 percent before paring losses to 4.3 percent at the close in Hong Kong. The Shanghai Composite Index lost 1 percent. The benchmark Hang Seng Index dropped 3.8 percent to the lowest since July 2012.
Policy makers in China and Hong Kong are fighting to prevent a vicious cycle of capital outflows and a weakening currency with the resulting financial-market volatility heightening concern that the mainland’s deepest economic slowdown since 1990 will worsen. [Bloomberg]
FTSE Outlook and Prediction
I find days like yesterday hard to trade unless you are already in a position or fancy a gamble, mainly as supports or resistance levels tend to break pretty easily and you just get chewed up. Anyway, for today, I have some weak initial support at the 5670 area, which if that holds may see us rise towards the 5725 area where we have the 30min 25ema resistance. The bottom of the 10 day Bianca channel today is at 5641, and this might well see some brave bulls start some buying in anticipation of the ECB and Draghi later on at 12:45. Whilst rates and stimulus are anticipated to remain the same, his press conference at 13:30 will be the real mover to see if he delivers another “do whatever it takes” moment. We might well see a bit of buy the rumour sell the news going on today. That was a pretty decent bounce last night from 5600 on the FTSE, 9250 Dax and 1810 S&P – so there are some buyers still around (algo’s/plunge protection team probably) so we may see some more of that today. There is a lot of fear around and panic in the media, some of it justified but when everything is hysterical tends to be when we get a bounce, albeit possibly of the dead cat kind. We may get lower still – 5400 or possibly 5200 – so its pointless trying to call a bottom at the moment. So, brave long around the 5640 area later on today.