Good morning. Positive Chinese trade data yesterday helped the FT100 and oil prices to rise on Wednesday morning seeing the FT100 6000 level being breached to the upside. However, as has been the case for the last few trading days, when Wall Street opened it become apparent that professional traders are using any strength to exit positions. Crude prices having been strong in the morning weakened quickly once again and slid towards $30 per barrel. In after hours trading the FT100 has fallen heavily inline with Wall Street so unless there is good news from China overnight there could be quite a negative open on Thursday. Unfortunately my short order was 6014 and the high was 6012! Still, the earlier longs worked well on FTSE, S&P and Gold. I mentioned in yesterdays missive that there was still likely to be another leg down, whether its ended at 5840 or has a bit further to go remains to be seen. Bulls need to break 5900 this morning for further upside towards 5953.
US & Asia Overnight from Bloomberg
Asian stocks dropped for the eighth time in nine days, following a renewed selloff in U.S. equities, as material companies led declines.
The MSCI Asia Pacific Index sank 1.5 percent to 120.97 as of 9:11 a.m. in Tokyo. A gauge of materials shares, the region’s worst-performing equities this year, lost 1.8 percent. The 2016 selloff in U.S. stocks intensified on Wednesday, with the Dow Jones Industrial Average tumbling more than 360 points. Chinese shares dropped to the lowest levels since the depths of last year’s rout in a late-day selloff as an unexpected rebound in exports and government efforts to stabilize the yuan failed to ease investor concern about the world’s second-biggest economy.
“Negative sentiment is dominating the market,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney. “The market focus keeps shifting whenever there’s positive news. We saw very good trade numbers from China yesterday and yet we’ve seen the rebound being short-lived as the focus shifted to commodities. It’s hard to get bullish.”
The MSCI Asia Pacific Index jumped 1.7 percent on Wednesday, its steepest gain in almost a month, and European equities also advanced. The rally fizzled in the U.S., where a sell-off in consumer and technology shares sent the Standard & Poor’s 500 Index to a three-month low. The Russell 2000 Index of smaller companies closed in a bear market, sinking 3.3 percent to its lowest since 2013, and down 22 percent from a record set in June. E-mini futures on the S&P 500 added 0.1 percent on Thursday.
Japan’s Topix index slumped 2.9 percent after jumping 2.9 percent on Wednesday. South Korea’s Kospi index fell 1.3 percent. Australia’s S&P/ASX 200 Index tumbled 1.5 percent, taking its decline from an April peak to 18 percent. New Zealand’s S&P/NZX 50 Index lost 1 percent.
China Futures
Markets in China and Hong Kong have yet to start trading. Futures on the Hang Seng Index fell 0.7 percent in most recent trading, while contracts on the FTSE China A50 Index slipped 0.8 percent.
The Shanghai Composite Index dropped 2.4 percent on Wednesday to close below 3,000 for the first time since Aug. 26. The gauge has slumped 17 percent in 2016, the world’s worst-performing global index, amid concern about the outlook for the economy and uncertainty over the central bank’s exchange-rate policy.
China’s trade surplus widened and exports recovered last month, a report showed Wednesday. Other economic indicators remain in the doldrums. The official purchasing managers index signaled weakness for a fifth straight month in December, while figures over the weekend showed producer prices extending declines to a record 46 months.
Brent oil finished 1.8 percent lower at $30.31 a barrel on Wednesday, after falling to as low as $29.96 intraday, on speculation Iranian shipments will soon climb. [Bloomberg]
FTSE Outlook and Prediction
I have resistance at the 5900 area to start with today so if the bears resume yesterday evening’s drop then we could well see a drop down to 5850. We have some support here though if this goes then 5800 looks like the next likely bounce point – we have the 10min and 30min channel bottoms here. Below that the 20 day Bianca at 5767 would be worth a long. Looking at the S&P we could get a bit more downside to the 1865 area and then in theory a bounce (though the media would have you believe that its the end of everything and we should be selling like mad), I have plotted the blue arrows for my preferred route, though the additional pink ones are plan B if the 5850 support breaks. I have gone for the initial short off the daily pivot as the 2 hour chart has gone bearish and the moving average is showing resistance at 5897. The bulls have fought back quite well from that 5840 level once again, though I think if we test those lows again then we are more than likely to break through. 10 day Bianca resistance is 5953 as an upside target for today. Interestingly gold has stayed below the 1100 level, even with that bounce off 1082 yesterday, so the bearishness might not have too much further to run. The FTSE really needs oil to bottom out and start climbing to break its bearish trend (maybe around the $26 area).