Good morning. It ended up being quite a flat day yesterday, though the FSTE did close at the highest level for 14 years, and still looks like it wants to go a bit higher. That said the short yesterday at 6875 went down to target at 6859, and even hit the secondary at 6849, before bouncing back again. The bulls are certainly the ones in control at the moment. The daily trends are tracking up still, and the indices seem to be shrugging off most things that might cause an upset at the moment. Interest rate rises are still being mooted as I mentioned yesterday. When you do start seeing the headlines in the mainstream media about the FTSE hitting highs and asking “is now the time to go back into the stock market?”, its exactly the time you should be getting out as the smart money has already ridden the rise. So, though there may yet be a push to 6900/6940, I don’t think we are on for a long bull run just yet.
Asia Overnight from Bloomberg
Asian stocks rose, with the regional benchmark index extending its biggest rally in seven weeks yesterday, as U.S. equity gauges held at record highs and investors weighed earnings.
The MSCI Asia Pacific Index rose 0.3 percent to 139.70 as of 12:07 p.m. in Tokyo with all of its 10 industry groups climbing. The measure jumped 1.1 percent yesterday, the biggest advance since March 24.
“The U.S. economy and corporate earnings are strong, which are reflected in that stocks haven’t fallen from record highs,” said Takahiro Nakano, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank by market value. In Asia, “earnings have been good, but companies are conservative about their outlook, making it hard for investors to raise hopes.”
Among companies on the Asian gauge that reported quarterly results from April 1 through yesterday and for which Bloomberg had estimates, 52 percent beat profit expectations, according to data compiled by Bloomberg.
Regional Gauges
Japan’s Topix (TPX) index was little changed. South Korea’s Kospi index rose 0.7 percent.Australia’s S&P/ASX 200 Index fell 0.3 percent after the government released its budget, in which it raised taxes on high-income earners, cut spending on welfare and health, and outlined public service job losses.
New Zealand’s NZX 50 Index added 0.1 percent. Taiwan’s Taiex index advanced 0.2 percent, while Singapore’s Straits Times Index increased 0.9 percent as the market reopened following a holiday.
Hong Kong’s Hang Seng Index advanced 0.2 percent. The Shanghai Composite Index fell 0.2 percent. The Hang Seng China Enterprises Index of mainland companies traded in the city added 0.4 percent. As of yesterday, the so-called H-share index had slumped 13 percent since Nov. 18, when it jumped the most in two years after the Communist Party outlined reforms.
While the November policy package led Goldman Sachs Group Inc. to raise its recommendation on Chinese shares to overweight and spurred Citigroup Inc. to predict returns of at least 20 percent in 2014, investors have shifted their focus to the depth of China’s economic slowdown.
Instead of boosting stocks, the government’s emphasis on reform may impede gains as policy makers downplay the importance of short-term growth, according to CLSA Asia-Pacific Markets.
Record Highs
The Standard & Poor’s 500 Index added less than 0.1 percent and the Dow Jones Industrial Average rose 0.1 percent yesterday, both extending all-time highs. Futures on the S&P 500 climbed 0.1 percent today.
U.S. retail sales increased 0.1 percent in April following a revised 1.5 percent jump in March that marked the biggest gain in four years, Commerce Department figures showed yesterday inWashington. The median forecast of economists surveyed by Bloomberg projected a larger advance last month.
“The data suggests that improvements in U.S. activity is likely to be gradual this year and that market bulls should not expect a sharp increase in activity,” Matthew Sherwood, Sydney-based head of investment markets research at Perpetual Ltd., said in an e-mail. “The U.S. consumer has consolidated their recent increase in activity.”
The Asia-Pacific gauge traded at 12.7 times estimated earnings as of yesterday compared with 16.1 for the S&P 500 and 15.2 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
FTSE Outlook
Only one of the trades took yesterday, being the short from 6875. It didn’t quite dip as low as the long order at 6840 which was a little bit of a shame, but the short around the 6905 area is still valid for today. Interestingly the Bianca 10 day channel has tightened up a bit and the top is now only 6892. I think I will split my shorts and go off both those levels – 6892 and 6905 and see what happens. I think the market is still heading a little bit higher though but shorting at resistance levels make sense just in case it decides to start declining earlier. The 20 day channel top is at 6949 and I do have a longer term resistance level also at 6937 – so there are some key levels to watch over the rest of this week.
Support wise today I am looking at the daily pivot area at 6865 and below that 6838. If those break then 6811 and 6765 are the lower supports.
So, those are the main levels to watch but it actually gets a little tricky to call when its like this (not that its ever that easy of course!) as we have a decent 30 min channel with resistance at 6873ish, and support at 6855, so taking the bigger picture levels out I’d favour a dip down from this 6870 area (which is possible as the rise off the supports was pretty slow yesterday and buying interest at all time highs is going to start to wane).