5th December 2018
The 7070 to 7090 area certainly turned out to be pretty decent resistance, as yesterday turned into a bit of a bloodbath in the end. The FTSE dropped all the way down to 6922, just shy of the lower support at 6912 but the bulls definitely got a bloody nose.
Theresa May, hard Brexit
U.S. stocks plunged, with the Dow tumbling almost 800 points and the S&P 500 dropping more than 3 percent, as a litany of concerns wiped out Monday’s rally in risk assets. Trade-sensitive shares sank as angst mounted that the U.S. and China made no meaningful progress on the trade front last weekend. Financial shares got hammered as the yield curve continued to flatten, even as a Federal Reserve official offered hawkish comment. Losses accelerated and trading volumes in S&P 500 futures spiked after contracts broke below their 200-day moving average. Adding to the risk aversion was news that U.K. Prime Minister Theresa May’s push to avoid a so-called “hard Brexit” may be at risk. Traders are even starting to bet that the Fed will cut interest rates as soon as 2020. The swaps market has moved up the timing for when it sees the hiking cycle peaking, toward the end of 2019 or early 2020, a period when the Fed’s own projections indicate tightening will still be under way.
Donald Trump, China, Tariff deal
President Donald Trump turned to a familiar playbook after his high-stakes dinner with Chinese President Xi Jinping on Saturday: boast of a big victory first, and let a more nuanced reality sink in later. Trump followed the same script after trade talks with the European Union and Canada and his nuclear summit with North Korea’s Kim Jong Un.
His optimistic comments can send markets soaring, before investors realize the president’s claims of success may have been exaggerated. The pattern played out again with auto stocks this week. Shares of General Motors Co., Ford Motor Co., Daimler AG and BMW AG surged Monday after Trump tweeted: “China has agreed to reduce and remove tariffs on cars coming into China from the U.S.” But by late Tuesday morning, Trump not only acknowledged there was no deal but questioned whether one was possible. He declared himself “Tariff Man,” while also suggesting that he could extend a 90-day truce in his trade war with China.
Parliament Brexit
Prime Minister Theresa May is battling to get her Brexit deal through Parliament, and has opened five days of debate in the House of Commons. In its third defeat of the day, the government lost a vote on an amendment put forward by Tory rebel Dominic Grieve giving more power to Parliament to shape Brexit if — as expected — lawmakers reject May’s deal. The government was also found in contempt of Parliament over its failure to publish its internal legal advice on the Brexit deal. It has now committed to doing so on Wednesday.
Oil continued its rebound ahead of Opec’s meeting on Friday and is up 0.16pc to $61.97 per barrel.
Pound
The pound had a rollercoaster ride yesterday after a top European law officer said the UK should be able to unilaterally cancel its withdrawal from the EU, which sent sterling surging in early trade. It later tumbled and hit its lowest level since June 2017 as the Government suffered its second major defeat, with MPs voting for Parliament to take control of the Brexit process if the Brexit deal is rejected next week. After recovering slightly, it was trading 0.09pc down against the dollar at $1.2715 and 0.06pc up against the euro at €1.1216.
FTSE 100 Trading Signals, Forecast and Prediction
The US markets are closed today for a day of mourning, and we have a tiny dividend of 0.5 today. There won’t be much to get excited about, and the news flow will probably remain fairly negative, so we may well see a bit of a slow dead cat bounce after yesterdays drops. The 6912 level wasn’t tested but if we were to drop that low then I am still expecting a bounce from this level, though initially we have support at the 6960 level still (where we are as I write this) and then the fib and overnight low (fish!) area at 6930 As such we may see any initial drop to here and then a bit of a bounce. I am favouring the 6912 level as a decent bounce point but happy to try a long slightly higher. You could always fade in and have the stop on both longs at the lower level.
If the bulls do put in a bit of effort this morning then we should see a rise towards the pivot initially at 6992, and as ever they will be keen to get back above 7000.
FTSE 100 Resistance
Resistance of note above the pivot is at 7038 on the 2 hour, but also the red coral at 7056 – a viable target if we start to get some bullish momentum, and also tying in with R1 at 7061. However, on the 30min chart we have the 200ema and the fib at 7030ish area, hence the short from this level on the trade plan. The ASX200 (Australia) has had a slow drift up so farad we may well do the same as markets catch their breath and retrace some of the falls from yesterday. Usually happens after such a large drop on the US indices. Interesting that the emerging markets haven’t sold off as hard despite that drop in the US.
The Trump modus operandi certainly fits the “buy the rumour sell the news” mantra and we have seen again with the Sunday night tweet regarding tariffs and then the detail emerging later. Do bear this in mind for the future.
We will either have a fairly flat stable and steady day today with the US closed, or extreme volatility. I am favouring the former with a slow bounce/retrace. Good luck once again and stay nimble!
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