Good morning, well how many times have we dropped in anticipation of tapering, then when we do taper it rallies? Of course they are now saying it done that as tapering means the economy is improving sufficiently to support itself. However, it still having $75billion a month pumped in! So, tapering started earlier than I thought, but only by a small amount and the Fed are keeping interest rates low for the foreseeable future. I am sure you all saw the reaction yesterday, was certainly a wild ride if you chose to trade it. The rise stopped at the 6575 resistance area mentioned yesterday, though as the news was released we dipped a bit further than I had plotted, down to the 6450 area where the bounce started.
In the trade plan for yesterday we had a short order for 6575, if you are still running that (assuming you set it up) I’d look to run that for a while today. The initial target was 6500 posted yesterday, which is today’s pivot level in fact, but it would be a good idea to get stops to breakeven and trail them. The earlier long, which was risky, and the SMS one ended up getting stopped at breakeven. Am not too worried as its always a bit of a gamble trading around news.
From now till the year end, I still think we will see a buy the dip Santa Rally kick in and am optimistic for the 6800 year end.
Asia Overnight from Bloomberg
Asian stocks rose after the Federal Reserve expressed enough confidence in the U.S. labor market to taper asset purchases while still promising to hold interest rates close to zero.
The MSCI Asia Pacific Index advanced 0.2 percent to 138.56 as of 12:01 p.m. in Tokyo, with more than two stocks rising for each that fell. The Fed announced plans to cut its monthly bond purchases to $75 billion from $85 billion, taking its first step toward unwinding the unprecedented stimulus put in place by outgoing Chairman Ben S. Bernanke to help the economy recover from the worst recession since the 1930s.
“It’s a win win for markets,” Shane Oliver, who helps oversee $131 billion as head of investment strategy at AMP Capital Investors Ltd. in Sydney, said by phone. “They are more optimistic on the employment rate and the economy while still keeping loose monetary policy in place with low rates to support the economy. We’re happy to stay overweight equities and if anything buy a bit more.”
The Fed said its benchmark interest rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” the Fed’s 2 percent goal.
Bernanke Comments
“Reflecting cumulative progress and an improved outlook for the job market, the committee decided today to modestly reduce the monthly pace at which it is adding to the longer-term securities on its balance sheet,” Bernanke told reporters in Washington yesterday after concluding a two-day policy meeting of the Federal Open Market Committee.
The U.S. Senate yesterday cleared and sent to President Barack Obama a $1.01 trillion budget deal, lowering the U.S. deficit over 10 years and easing $63 billion in automatic spending cuts. The plan keeps in place about half of the reductions known as sequestration for next year, and about three-quarters of the planned cuts for 2015.
Futures on the S&P 500 Index dropped 0.2 percent today after the equities gauge surged 1.7 percent to a record 1,810.65 yesterday. The Dow Jones Industrial Average soared 1.8 percent to 16,167.97, also a record. The cost of protecting against equity losses as measured by the Chicago Board Options Exchange Volatility Index slid 15 percent, the biggest drop in two months.
FTSE Outlook
So, onto the FTSE. As mentioned above today’s pivot is 6500, a level that feel quite far away after such a strong rise yesterday! If the 6575 area holds as resistance for the moment then it likely, though as you can probably tell from the tone of this email I am bullish now for the year end and buying the dips is probably the sensible thing to do. It will be even better if the FTSE can break 6575. If it does then 6640 is on the cards. The reason why I think they MIGHT be a little pull back first is that we are testing the top of the longer term daily channel (20 day Raff) and 6575 is the top of the 10 day, so a little pull back, bit of consolidation, to create a spring board to push higher tomorrow and next week would be ideal. That said it can of course break out of the channel, retest and then climb again. A breakout target would be 6640 then 6720.
There is still a risk of 6200 until prices can get above 6575 though.
After yesterday we will probably still get a bit of volatility today, though whether it dips as far as 6500 I am about 50% sure of, as we may see a bit of a gap close initially as price retraces back to yesterdays close level at 6492). Be a good place to buy the dip though!