Good morning. A pretty flat day on the FTSE yesterday which really seemed to lag the other indices, most noticeably the DAX which looks like its pushing for 9400. Fortunately the gold trade I mentioned yesterday with the 1228 support needing to hold came good, and has now gained more to 1253. The bulls didn’t quite reach the 6711 (with the spread) before the dip to the pivot but it was all very slow moving and though we did bounce at the 6686 area, it was very lacklustre and gave up after the close. Back above it now though and knocking on 6700 again. Its sometimes a bit telling when then FTSE lags the other indices, as if they start to pull back then the FTSE will probably follow them down, without fulfilling its potential upside targets. I mentioned 1814 for the S&P as a stumbling area yesterday, and that’s still the case, and 9400 on the DAX so watch those levels, though the S&P is still stalling around the 1810 area.
On gold again, if the bulls can break 1253 then I expect we will add another 10 or so points initially, possibly even ultimately pushing to 1269 and 1305. So, short term still looking good for a bit more upside in fact.
Asia Overnight from Bloomberg
Asia’s benchmark regional stock index swung between gains and losses after valuations climbed to near the highest level in six months. Gold producers advanced, while Japanese exporters declined on a stronger yen. The MSCI Asia Pacific Index added less than 0.1 percent to 141.77 as of 2:03 p.m. in Hong Kong after falling as much as 0.2 percent. The measure rose 9.6 percent this year through yesterday as investors bet the Federal Reserve will maintain its bond buying into 2014.
“People have become a little bit blasé about the risks and that’s creating an environment where we are a little too stretched,” Angus Gluskie, who helps oversee about $550 million as a fund manager at White Funds Management in Sydney, said by telephone. “The market is ready for a technical pullback and we have taken some money off the table. We are now cautious.”
Valuations on the MSCI Asia Pacific Index yesterday climbed to 13.9 times estimated earnings, close to the multiple of 14 reached on Nov. 18, the highest level since May, according to data compiled by Bloomberg. That compares with 16.3 yesterday on the S&P 500 (SPX) and 15.2 for the Stoxx Europe 600 Index.
QE
Minutes of the Fed’s October meeting released Nov. 20 showed officials may reduce their $85 billion a month of bond buying if the economy improves as anticipated. Stimulus from the Fed has helped the S&P 500 soar 166 percent since its March 2009 low. The index has advanced 26 percent this year, poised for its best annual performance in a decade. Four of every five investors expect the Fed will put off a decision to begin reducing monetary stimulus until March 2014 or later, according to a Bloomberg Global Poll of investors, traders and analysts who are subscribers. Just 5 percent are looking for a move at the central bank’s Dec. 17-18 meeting, the Nov. 19 poll showed.
“The global economic environment is improving so this should be constructive for equities,” Tai Hui, Hong Kong-based chief Asia market strategist at JPMorgan Asset Management, which oversees about $2.2 trillion globally, told Bloomberg TV. “We should be looking at a continued increase in our portfolio allocation to equities.”
S&P Futures
Futures on the Standard & Poor’s 500 Index rose 0.2 percent today. The gauge fell yesterday, after seven consecutive weekly gains that boosted the gauge to a record, as energy shares retreated following Iran’s agreement to limit its nuclear program.
FTSE Outlook
I’m just going to start by talking about the S&P and it dropped off quite well from the 1810 (near enough) area yesterday to 1800 before staging a bounce. If the bears have another go then 1800.5 yesterday’s low) is the level they will need to break to target 1794, whilst movement above 1809 should see the 1814 level. US thanksgiving holiday later this week should in theory be creating a fairly upbeat populace so I am inclined to maintain the bull side for the moment. Onto the FTSE. As mentioned above it was pretty flat yesterday with not a lot happening. I am still bullish, providing that the bulls can break 6711. This level has provided quite a bit of resistance but the more its tested the higher the chance that its going to break. If it does then I can see quite a quick climb to 6750+ on the proviso that the ProTrend line at 6723 doesn’t also act as resistance. I have plotted pink arrows from that level as it’s a bit 50/50 really what it does at these resistances, 6711 and 6723 are both fairly key and possibly jumping both hurdles is a big ask, though as mentioned, if it does then a run to 6750 is likely.
The momentum is with the bulls at the moment, and with the FTSE lagging the other indices yesterday may play catch up today. On the other hand, if those other indices decide to top out then the FTSE is very likely to drop in tandem with them, and dip to 6655 is likely. After that level, there are supports around the 6630 area being the bottom of the Bianca channel area (10 and 20 day) and the 10 day Raff.
Initially I am playing the long side for a run to that 6750 and will hope that the bulls keep the momentum for a bit longer. Shorting areas are the resistance levels at 6711, 6723, 6762, 6778 – the first 2 of these are the risky ones. I don’t think it will be long before the bears have a go though as we start testing the top of the daily channels.