Good morning, well we got the drop yesterday from the 6810 area (admittedly it did go slightly higher, probably to take out a few stops) before dropping all the way to the target area at 6750. It also meant the Dax failed to hold above 9000, more on that below (members only). The 6750 area is still key to my mind and if this holds then we should see 6800 again, possibly a bit higher. Yesterday’s sell off was in anticipation of what he Fed were going to say, and that was basically nothing changing, tapering possibly next year (as suspected all along!). I still suspect April 2014 for a reduction in QE, to get Q1 out the way and assess the data coming out. That is just my hunch though!
Asia Overnight from Bloomberg
Asian stocks fell, trimming the best two-month rally for the regional benchmark gauge since the start of 2012, after the Federal Reserve fueled bets it may start paring stimulus sooner than previously forecast.
The MSCI Asia Pacific Index dropped 0.4 percent to 142.63 as of 12:25 p.m. in Hong Kong, with eight of the 10 industry groups on the measure retreating. While the Fed said fiscal policy is “restraining economic growth,” policy makers see signs of “underlying strength.”
“Tapering is inevitable, and that’s what you read from last night’s statement,” said Donald Williams, Sydney-based chief investment officer at Platypus Asset Management Ltd., which oversees about A$1.6 billion ($1.5 billion). “The timing is still unsure, but the market is going to price in the likelihood of tapering in the next six months at the latest.”
The odds of the Fed starting to taper its stimulus in January rose to 45 percent from 25 percent before yesterday’s statement, Citigroup Inc. said. Economists surveyed by Bloomberg Oct. 17-18 predicted the Fed would begin paring stimulus in March.
US Futures
Futures on the S&P 500 fell 0.4 percent today after the equity gauge yesterday lost 0.5 percent, halting a four-day winning streak.
The Fed maintained its $85 billion in monthly bond purchases yesterday as expected by strategists, saying it needs to see more evidence that the economy is improving.
Fed Chairman Ben S. Bernanke is pushing unprecedented accommodation into the final months of his term as he seeks to shield the four-year economic expansion from the impact of higher borrowing costs and this month’s partial U.S. government shutdown. The 16-day closing resulted in the furloughs of as many as 800,000 federal workers and delayed release of data the Fed says it needs to evaluate the economy.
FTSE Outlook
I am inclined to think that the 6750 area will hold for the short term and we get a bounce back to today’s pivot at 6787. If 6750 breaks then 6713 looks likely to be hit which is the bottom of the 20 day Bianca channel. We are hovering around the bottom of the 10 day Bianca channel at the moment, having dropped off from the top of that channel yesterday at 6810. I have next week pencilled in for it to start getting more bearish though after yesterday the worm could be starting to turn now. If the pivot breaks and movement can gain traction above 6787 then we should get the top of the 10 day channel again at 6827, possibly higher at 6845. S1 support level for today is also 6754 so there are quite a few supporting cases for this level. For the open the EMAs are negative on the 30 minute chart so the bulls will need to be quick out the blocks if this level is to hold.
We are at the bottom of a fairly decent channel on the 30 minuet chart and with the supports and key levels at 6750 I feel an initial long is worth it from here, however a tight stop as if this level breaks then a test of 6710 is likely. I have plotted a fairly bullish course for today, mainly as I don’t think its downhill from here just yet, and I had a long at 6750 pencilled in from yesterday. That play will probably just carry over to today. I put in a little dip to the 50 level and the bottom of the channel though its held pretty well so far above so might not dip back there.