The lows are really being tested but for the time being are just about managing to hold on. The 7500 level in the Dow is considered to be major and the index dipped below briefly yesterday in a session that commenced with the bears firmly in control however a small bounce off the lows meant we are now sitting gingerly above. The S+P is already considered to have breached its major support of 800 and some are calling for 2008’s low to be taken out around 750. The FTSE 100 is also trying its best to hold onto 4000 but having been below it on a couple of occasions this week the bears look to be in control for the time being.
Considering the historic low valuations of many stocks the temptation for investors are being tempted in to buy cheap is considerable, however technically things look like they could get cheaper. Clients remain bullish on the whole believing that we’re at the bottom but it’s difficult to get in any shape or form enthusiastic about the stock market at the moment. Bottoms in stock markets are usually formed by a ‘major’ event which everyone looks back on a year later and says “gosh, why didn’t I buy then when it was so obvious that the bottom had been made following such or such an event” and many bulls have been expecting Obama’s major bailout plan to be such an event. For example, the last bull run commenced on the eve of the Iraq war in 2003 – a major event in anyone’s book, although you wouldn’t associate the commencement of a war as a signal to buy equities. The market’s muted response would indicate that investors are still waiting for something.
The FTSE has recorded six 6 declines in the last seven trading sessions, losing 7% in that time and bringing the total loss so far in 2009 to 10%. With so little in the way of economic data today there are no real expectations for a particularly volatile session in the indices, certainly this morning anyway. At 13h30 the US releases producer prices which are expected to follow the downward trend in inflation with the Y/Y figure due to fall from -0.9% to -2.4%, although M/M is expected to rise 0.3%. Tomorrow also sees US consumer prices and worse than expected figures could be the straw that breaks the camel’s back. The threat of deflation is real and if today and tomorrow’s figures confirm these fears then equities could be driven lower.
On an individual stock front BAE Systems has posted good figures as it benefits from sales of some business units and continued business from major defence contracts. BAE’s share price is one of the few to be posting a gain in 2009 and they remain confident about their outlook. A weaker pound has also helped earnings as a large amount of their sales is in dollars.
Kingfisher’s woes continue as B&Q struggles in the current economic climate and with few glimmers of hope for the housing market the outlook doesn’t look particularly pretty either. Their margins have taken a real bashing and much of their stock they must be selling either at cost or for a loss in a bid to lure customers through their doors.
For high street bookie Ladbrokes things don’t look all that much better either as they reported a fall in revenues citing that not only are they seeing a big fall in stakes from big hitters, but they’ve had a rotten run recently with the weather cancelling a large amount of race meetings. The glimmer of hope though is that despite their large clients taking a breather, they have seen in increase in punting overall and their share price is posting a healthy 6.5% rise this morning.
Despite the placid indices other markets are providing quite a bit of action this morning. Sterling and the euro are on the bid against the dollar both up around 1% this morning. It would seem that the dollar is coming under some pressure ahead of today and tomorrow’s inflation data. Resistance is being tested in the euro as I write around the 1.2650 level and sellers have come in as the RSI technical indicator is over the 70 mark which is meant to signal an over bought market. The technical situation is similar for sterling/dollar as it tests the 1.4400 resistance level, but currently just below there at 1.4380.
Gold made a run for $990 yesterday and is having a breather this morning. The graph looks strongly in favour of the bulls at the moment and clients seem to be taking any pull backs as an opportunity to go long the precious metal.
Click here to go to Capital Spreads
Simon Denham is COO of London Capital Group and Capital Spreads. We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.