Morning all, well the FTSE failed to hit the level I was looking for to get with the better short option, being 6650, instead topping out at the lower resistance level mentioned of 6625. Sure enough there was a rush of buying as we hit the 6570 low, hitting 6600 just before the bell as the divi hunters and short covering took place. Overnight we have dropped down to the 6562 area – right on the bottom of the Bianca channels. We are now nearing some support, both here at 6562, though if that goes, stronger support at 6535. Longs there should be good as I am expecting a decent bounce from that level, if hit. Resistance wise, 6630 is the main level that would need to be broken but if so a run to 6665 and maybe even the 6700 again. The 6720 level is still sat there as resistance, just a shame we fell short the other day.
Lots more positive news flow coming out at the moment certainly with some good headline grabbing facts. Yesterday saw pointed to the most widespread growth seen at factories in decades, a further increase in activity in the housing market, and estimates of a pick-up in growth across the economy as a whole. However, been reading in a few places that once the data is drilled into its not quite as rosy as it would appear – lies, damn lies and statistics comes to mind! On the news front for today, note that at 10:30 we have Mark Carney talking with the BoE inflation report – he has been urged to be clearer on the future path for interest rates and so called “forward guidance”. We shall see.
Asia Overnight from Bloomberg
Asian stocks fell the most in a week, led by Japanese shares, and the yen strengthened on expectations the nation’s central bank will refrain from adding to stimulus in meetings this week. Gold and copper declined.
The Bank of Japan won’t expand stimulus at its two-day meeting that starts today, according to all 25 economists surveyed by Bloomberg. Federal Reserve officials have signaled this week the improving U.S. economic outlook is providing more scope to reduce asset purchases that have fueled stock and bond gains. Bank of England Governor Mark Carney speaks today about implementing forward guidance aimed at anchoring interest rates, while German data is forecast to show industrial production rose.
“There’s a cautious tone to markets developing as the recent equity rally struggles to maintain momentum,” Matthew Sherwood, the head of investment markets research in Sydney at Perpetual Investments, which manages about $25 billion, said by e-mail. “The sell-down sentiment seems to be one of caution, rather than panic.”
Chicago Fed President Charles Evans, among the strongest proponents of the unprecedented efforts to stimulus the U.S. economy, said yesterday he “would clearly not” rule out a decision to begin curbing the $85 billion in monthly bond purchases in September. “We’ve seen good improvement in the labor market, there’s no question in my mind about that,” Evans said in a meeting with reporters in Chicago. “I’m still wanting to see greater evidence that it’s a sustainable improvement.”
Dallas Fed President Richard Fisher said on Aug. 5 the central bank is closer to slowing bond buying and warned investors not to rely on that stimulus. Dennis Lockhart, president of the Atlanta Fed, told Market News International that should economic growth and job creation pick up as expected, the Fed should proceed with the “removal” of asset purchases.
Bank of England
BOE’s Carney will discuss the Monetary Policy Committee’s analysis of steering expectations today when the central bank presents its quarterly inflation report. The central bank said on July 4 the expected increase in future interest rates was “not warranted by the recent developments in the domestic economy.” Barclays expects the BOE to tie its commitment to low borrowing costs with unemployment levels.
Well its looking decidedly more bearish now and the bulls have 2 levels to defend – 6562 and 6535. If we hit the latter I expect a decent bounce. The S&P is also currently on a support zone at 1689/90 so may see a bounce back to 1700. We are testing the bottom of the 10 and 20 day Bianca channels at this 6565 level, and they marked the start of that divi bounce yesterday at 6570. Presuming we bounce a bit off them again today we could be on course to test the pivot at 6598, then further declines. A third test of the Bianca channels later would see a drop to 6535 which could tee up a more meaningful bounce. The bias is definitely swinging to the bears now, especially with the failure of the bulls to hold above 6700. The news flow is getting positive which is usually a worry as that start sucking in the retail investors (private investors) just as the pro money is getting out. I have put 3 shorts below but with tight stops, each playing off the resistance levels I have, if they break though then the next level would likely be hit, hence the tight stops.
Levels to watch
Support: 6562, 6535
Resistance: 6598 (Pivot), 6630, 6665, 6698