Good morning. Little bit of a strange day yesterday, we got the rise and dip, but the rise took a while to get going, fell just short of the 6682 short order (high was 6673), then dropped all the way to a low of 6585. Reality is starting to hit the tech shares in the US with their crazy valuations for companies that make no money hence the Nasdaq has taken a pasting the past few sessions. Think the penny is finally dropping! The recovery in shares prices is mostly underpinned by share buy backs as well, so plenty of reason to remain cautious. I am still bearish for this week, especially with the drop off the 6700 area on Friday, being the 10 day Bianca channel top.
We are going into earning season now in the US and that usually makes things a little bit choppy.
We have a few bits of production data out at 09:30 though not particularly market moving usually but will give a feel for recovery sustainability again, so decent figures might get the bulls going. We have the divi today, only small at 1.8, but will the usual bull Tuesday pattern repeat – dip first thing then rise?
Asia Overnight from Bloomberg
Asian stocks fell for a second day, following the biggest three-day rout in U.S. shares in more than two months, as health-care to technology companies retreated in Japan. Chinese equities rose.
The MSCI Asia Pacific Index declined 0.4 percent to 138.02 as of 12:28 p.m. in Hong Kong as eight of the 10 industry groups on the gauge retreated. Investors are selling technology and telecommunication firms across the region, paring holdings in Internet companies that have led gains in global equities during the past 12 months.
“Equity valuations have peaked and markets will trade nervously going forward,” said John Vail, Tokyo-based chief global strategist at Nikko Asset Management Co., which manages about $157 billion. There is “accelerating deterioration of China’s economy and financial system and subpar U.S. and Japanese economic growth.”
The MSCI World Index of developed-market stocks reached 15.4 times estimated earnings this month, compared with its average multiple of 13.8 over the past five years, according to data compiled by Bloomberg. The MSCI Asia Pacific Index yesterday traded at 12.6 times profit compared with 15.7 on the Standard & Poor’s 500 Index, the data show.
Regional Gauges
The Asia-Pacific stock gauge last week climbed to its highest level in more than two months as U.S. data pointed to a recovery after severe winter weather slowed growth and China outlined stimulus to ward off a slowdown.
Japan’s Topix index slid 1.6 percent today as the yen rose for a third day, trading at 102.98 per dollar. The Bank of Japan maintained its monetary-base target at between 60 trillion yen and 70 trillion yen today, concluding a two-day policy meeting.
South Korea’s Kospi index and Taiwan’s Taiex Index advanced 0.2 percent, while Singapore’s Straits Times Index added 0.3 percent. Australia’s S&P/ASX 200 Index retreated 0.2 percent with trading volume 27 percent below its 30-day average for this time of day. New Zealand’s NZX 50 Index lost 1 percent as Xero Ltd., a developer of online accounting software, slumped 12 percent.
China Reopens
Hong Kong’s Hang Seng Index added 0.9 percent and the Hang Seng China Enterprises Index rose 1.5 percent. The Shanghai Composite Index gained 1.3 percent as mainland Chinese markets reopened following a holiday.
S&P 500 futures rose 0.2 percent today. U.S. stocks fell yesterday, pushing the Nasdaq 100 Index to its biggest three-day retreat since 2011 as technology shares extended last week’s selloff and erasing the year’s gains in the S&P 500, which has lost 2.4 percent in the past three days.
Alcoa Inc., the largest U.S. aluminum producer, unofficially opens the U.S. quarterly earnings season when it releases financial results today.
FTSE Outlook
Todays pivot is 6644 so I expect that will act as resistance to any early rise, if there is one. We overshot the bottom of the 10 day Bianca channel with yesterdays bearishness, which was a little surprising, as we only tested the top on Friday. As such if 6602 holds today then the bulls are still in with a shout. The “usual” (I say that slightly tongue in cheek as its never quite that predictable) bull Tuesday pattern is dip and rise so am about 75% expecting that today. The 30 minute chart certainly looks better positioned for a bit of a bounce, looking at the EMAs which are about to cross. Upside resistance levels to watch are the pivot at 6644 and also 6657 so i think that 6650 area will be a possible shorting area. Should the bulls break 6657 then I think revisit of 6700 and possibly the top of the Bianca channels around 6720. Yesterdays drop could well have just been overdone, and considering the bearishness on the S&P/Dow the FTSE has held up pretty well. The S&P tested the bottom of the Raff yesterdays and todays 20 day channel has support at 1842. I think a climb there to 1875ish before more downside, which would carry the FTSE up with it.
If the FTSE is going to drop initially I think the low seen yesterday at 6585 will act as support, as we also have some green ProTrend lines in that area.