Good morning. Ok, so that wasn’t in the plan. Both of my longs got stopped out yesterday, as the FTSE decided to follow the US and throw its toys out the pram. I must admit I wasn’t expecting it to be that bearish yesterday. As I have said though once the headlines starts with the new record highs it often means that the topping out process has begun. I don’t think 6895 will be it (typically just missing the short order from yesterday which was sat at 6905), but it will depend on what happens today. Support has been set at 6821 now, yesterdays low basically, so if the bulls can hold that and break 6860 then it should push up again. I have a hunch that this 2 day dip on the US markets is just an initial pull back from those highs but there is a bit more “gas in the tank” to push a little bit higher. The daily trends are still up – in fact it was the Raff channels that supported the FTSE at 6820 yesterday.
We have US housing news out at 13:30 but apart from that not too much other news today, so we might not get one of those unpredictable Fridays that you often see. Economic Calendar here.
The big question of course is “was that the top then?”. I think we will find out over the next 2 trading sessions. If these daily channels hold then I think No and we push up to 6900, if 6821 breaks today then Yes, it looks that way. There is certainly a bit of nervousness creeping in at the mo, and I and many others wouldn’t be rushing in massively long at these lofty heights. But that said, will still go long off supports just in case!
Asia Overnight from Bloomberg
Asian stocks fell, dragging the regional index from a four-month high, as bonds from Australia to Singapore followed Treasuries higher amid concern the global recovery is stalling. India’s shares jumped the most in five years and the rupee strengthened on election results.
The MSCI Asia Pacific Index lost 0.9 percent as of 1:16 p.m. in Tokyo, dropping for the first time in four days. The S&P BSE Sensex (SENSEX)Index rose as much as 4.9 percent in Mumbai as early counts showed Narendra Modi’s main opposition bloc will take power. Standard & Poor’s 500 Index futures were little changed, following the gauge’s biggest loss in a month. Yields on 10-year Australian notes fell five basis points with 30-year Treasury rates near an 11-month low. The yen rose and oil gained.
China reported the biggest jump in bad loans since 2005 yesterday, fueling concern over the global outlook as the U.S. announced an unexpected drop in industrial output and Europe’s economic growth missed estimates. Modi’s Bharatiya Janata Party and its allies took an early lead in India’s vote count, having vowed to revive growth in Asia’s third-largest economy.
“There’s a bit of nervousness on the part of investors even as the market has been in an uptrend,” saidDonald Williams, Sydney-based chief investment officer at Platypus Asset Management Ltd. that oversees about A$1.3 billion ($1.2 billion). China “is no longer a benefit to the market. We just see China as neutral.”
US Industrial Production
U.S. industrial production shrank 0.6 percent last month, after economists polled by Bloomberg predicted zero growth. The gauge rose 0.9 percent in March. The euro area’s gross domestic product grew 0.2 percent, compared with 0.4 percent estimated in a Bloomberg survey. Nonperforming loans in China rose by 54 billion yuan ($8.7 billion) in the first quarter, to 646.1 billion yuan, the highest level since September 2008, the China Banking Regulatory Commission said yesterday.
Bonds Rally
Australian government bonds due in a decade yielded 3.71 percent, with yields declining a third day. Yields on similar-maturity Singaporean bonds fell five basis points, or 0.05 percentage point, to 2.20 percent. Japan’s yield slipped to 0.585 percent from 0.59 percent.
Yields on 30-year Treasuries were little changed at 3.33 percent, after sliding five basis points in New York to the lowest level since June 14. The S&P 500 dropped 0.9 percent, the biggest decline since April 11.
“Ongoing low inflation and full stock valuations have some investors seeing relative value in bonds compared to equities at present,” Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in an e-mail. “The post global financial crisis economic recovery will be a long, slow haul characterized by ongoing sub-trend growth in the major economies.”
Credit Risk
A measure of credit risk in Asia jumped the most in six weeks. The Markit iTraxx Asia index of credit-default swaps increased four basis points to 121.5, set for the biggest gain since April 3, ANZ prices showed.
FTSE Outlook
So close to the short order but no cigar and then the longs got stopped out. That was certainly a fear driven sell off, not helped by the US industrial figs missing estimates to put the cat amongst the pigeons. The supports levels, which were actually looking pretty strong based on the morning analysis, didn’t even get much of a look in. Which was annoying but thats the way it goes. The key level today is yesterday low at 6821 – which is also the bottom of the 2 Raff channels and the Bianca 10 day at 6832. Looking at the Bianca Channels I would expect us to have a little bounce today, but ideally I want the 30 minute EMAs to cross to bull (they are bearish as I write this).
Todays pivot is 6852 and roughly where the coral is so that will be initial resistance. There is a 30 minute channel in play, the bottom of which is at 6828, which I think it worthy of a long, with a stop just below yesterday low. If that holds then we ‘should’ get a run to 6860 and 6880. I still have 6905 as the top of the 10 day resistance and if the S&P/Dow continue their bounces off the lows then we could see 1900+ again on the S&P early next week. The key will be to overcome the bit of fear thats in the market at the moment. I am still looking to go short at the 6905 though, as its the top of the 10 day Bianca, though the 10 day Raff is slightly higher around 6930.
I wouldn’t be surprised if it was bullish today……