Good morning. Once again the 6670 worked out well for some long action yesterday, however it got decidedly choppy later in the day with, no surprise, taper talk. Bottom line is that there will be tapering just no one knows when. Yesterday was just a warning shot across the bows saying that it would be coming in “coming months” according to the minutes released yesterday. Personally I am sticking to my original estimate of April 2014 to start, though that is of course just my opinion. Tapering talk spanked gold right down, and after a bounce in the next few sessions to 1295 I think it probably has further to fall, certainly sub 1200. The FTSE is in a bit of limbo at the moment, I was hoping the rise yesterday from the 6670 area was going to be more stable to 6720 rather than a spike to 6715 and then completely reverse. The third test of the 6670 area sure enough broke (the third test of a level usually does) and we have had overnight lows of 6650. It feels a little like it is treading water though as the daily Raff’s are heading down, whilst the Dax is heading up. Looking to Bianca, the channels line up with resistance at 6740 and support at 6630 – likely to be significant areas today if seen – and like the Raff’s are heading down.
Asia Overnight from Bloomberg
Asian stocks fell for a third day after minutes from the Federal Reserve’s last meeting signaled U.S. stimulus may be reduced in coming months and a gauge of China manufacturing fell more than expected.
The MSCI Asia Pacific Index dropped 0.6 percent to 141.29 as of 1:32 p.m. in Hong Kong with nine of the 10 industry groups on the gauge falling. Japan’s Topix (TPX) index rose 0.8 percent as the yen slid. The MSCI Asia Pacific excluding Japan Index declined 1.3 percent.
“There’s a feeling around that the Fed is starting to see the cost of ongoing quantitative easing mounting,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which oversees $135 billion. “The market is still feeling very twitchy about it.”
U.S. Futures
Futures on the Standard & Poor’s 500 Index declined 0.2 percent today. The measure dropped 0.4 percent yesterday. Central bank policy makers “generally expected that the data would prove consistent with the committee’s outlook for ongoing improvement in labor-market conditions and would thus warrant trimming the pace of purchases in coming months,” according to minutes of the Federal Open Market Committee’s Oct. 29-30 gathering released yesterday.
The European Central Bank is considering a smaller-than-normal cut in the deposit rate if officials decide to take it negative for the first time, according to two people with knowledge of the debate. Policy makers would reduce the rate for commercial lenders who park excess cash at the ECB to minus 0.1 percent from zero, said the people, who asked not to be named because the talks aren’t public.
FTSE Outlook
As has been the case recently any tapering outlook either spooks or reassures the market, yesterday it was the spooking side. The US indices reacted accordingly and dropped, with the S&P finding some support at 1677 before a bit of bull at the close to add 5 points. That low hasn’t been broken overnight, though if it goes then 1769 is next support. For the bulls, movement back above 1781 (close level) should see 1784 and 1791. Make or break today for the bulls, as if these support go then I think we will be having a few sessions of downside.
For today I can see a case for a rise to 6700 again, however its really all up to the bulls if this support at 6660 holds. They got a bit beaten up yesterday with so many test on the 6670 door so they might have their work cut out today. Breaking 6700 might be a big ask though as that is quite a significant channel on the 30 minute chart there, so there is every likelihood that the bears will come out there. They are keen to get that dip in before any Santa Rallies appear! I have put in pink arrows at that 6700 level as to be totally honest it could do anything there. The bulls really need to get through there and break 6730 if they are going to really push higher in the short term, the bears will want to break 6660 to get 6609 soon.
I have gone for an early bounce from this support level, mainly based on the bounce the S&P put in at the end of yesterday’s session, though it is risky as the EMAs are negative at the moment, and we have a red coral. It could just as easily start a wave of selling after the decent rises we have had over the past few weeks. If the bulls are weak then we may even struggle to break the daily pivot at 6684 on any initial rise. So, today I am very cautiously bullish but will be ready to go bearish if 6660 breaks.