Good morning. Well the bulls have had a smack in the teeth to start 2014, failing to break Mondays high at 6767 yesterday and now looking at an open just shy of 6700. I thought that yesterday would see a bit of a bounce after the initial dip, mainly as it was the start of the year and a new month and with all the bullish rhetoric there might be some inflows. Alas not and instead it turned into quite a bearish day, and looks set to continue. It is always a worry when everyone seems rather bullish as you probably want to start being a bit worried and take an opposing view. That said, looking at the 30 minute chart its only at the bottom of the 30 minute channel so not really uber bearish just yet. It’s also worth noting that the Dax had a shocker yesterday, shedding over 200 points, whilst the FTSE held up pretty well. Its China that’s dragging things down at the moment in terms of indices, but pushing up gold prices at the same time on increased demand. That has fuelled the biggest weekly gain in gold prices since October.
“There’s going to be a lot of uncertainty, a lot of volatility in gold prices,” Ed Moy, the chief strategist at Morgan Gold, an Irvine, California-based investor that offers bullion for retirement accounts, said in an interview on Bloomberg Television’s “First Up.” “Gold is part of the Asian mindset that it’s a way to store your wealth. Given the extremely strong demand from Asia, that should put some upward pressure on gold in the long term.” [Bloomberg]
Asia Overnight from Bloomberg
Asian stocks dropped, with a regional index headed for its biggest loss in three weeks, and credit risk increased after a gauge of China’s service industries fell. The yen rose with gold while emerging-market currencies slid.
The MSCI Asia Pacific Excluding Japan Index lost 1 percent at 1:26 p.m. in Hong Kong and the Hang Seng China Enterprises Index tumbled 2.5 percent. Standard & Poor’s 500 Index (SPX) futures were little changed after U.S. equity gauges sank from records yesterday. Indonesia’s rupiah slid 0.6 percent versus the dollar, trading near the lowest level since 2008, while the yen jumped 0.7 percent. The cost of insuring sovereign and corporate bonds in Asia outside Japan rose to a three-week high and gold added 0.6 percent.
China’s non-manufacturing gauge fell to a four-month low in December, after data earlier this week showed two measures of factory output in the world’s second-largest economy declined. Physical demand for gold is rising after the precious metal tumbled 28 percent in 2013, the worst annual retreat since 1981. Federal Reserve Chairman Ben S. Bernanke speaks today and euro region money supply figures are also due.
“You cannot count on China to contribute to global growth now as the economy is still under structural adjustment,” said Dai Ming, a money manager at Hengsheng Hongding Asset Management Co. in Shanghai. “There’s no excitement in the macro economy and in this case it’s difficult for the stock market to have good performance.”
China’s non-manufacturing purchasing managers’ index fell to 54.6, the lowest since August, from 56 in November. Data Jan. 1 showed the official gauge for factory output dropped more than economists projected, also to a four-month low. An HSBC Holdings Plc and Markit Economics Ltd. index of Chinese manufacturing published yesterday slipped to 50.5 from 50.8 in November, matching the median estimate in a Bloomberg survey.
US Fed speeches
Bernanke is scheduled to make remarks today at an economics conference in Philadelphia at 19:30. Fed officials said Dec. 18 they would trim monthly purchases of bonds to $75 billion from $85 billion starting this month. There are a few others talking too, from 17:45 onwards – full list here
FTSE Outlook
There is a chance that the 6700 level holds for the moment as that is the bottom of the 30 minute channel as you can see below. However, I have also put a trade plan for a long from the 6686 area, based on a dip to the fib retrace that you can see on the Bianca chart and the next level of support. As the Dax, FTSE and S&P are all at the bottom of their Raff channels I do think we might see a bit of a bounce from these areas, and I don’t think the bulls are going to give up just yet. Yesterdays would have triggered quite a few stops and of course, we are still on a skeleton crew as most traders are off till Monday, so moves are amplified.