Monday morning and markets look to be on the soft side
The FTSE looks to be opening below the trend line support in place since the start of the rally in March and day traders will be watching to see whether there is any follow through that might confirm the break lower. The opening call is for the market to open some 40 points lower at around 4420 but we are seeing heavy selling in pre-market action.
Over and above the break of the trend line remains the overall trading range which is defined as the 4300 to 4500 barriers to any move in either direction.
As I write the market opens and the initial move is much more aggressive than at first expected with trading hitting as low as 4369 in a frantic first few minutes. There is some support around the 4350 area as well which may hold for a while at least but below here the bears will definitely be looking for a test of the major 4290 – 4310 support. Will we finally have a direction to get our teeth into or will the ranges hold again? Over the last few weeks the 4500 resistance has seemed in imminent danger of giving way only to hold steady at the last. Until we close below 4300 the betting is still on another buying opportunity in the low 4300s.
While the news continues to favour a return to growth in the 3rd/4th qtr 2009 there is a certain amount of wishful thinking about this. If it does occur then stories of the worst recession since ‘the big one’ in the 1930’s will seem rather ridiculous. As commented many times in these missives, for all of the bad economic data there really does not seem to be anything like the hardship in evidence even in my short experience of down turns. The very real pain in the eighties and nineties suffered by a huge swathe of the population is much more hidden this time around. If growth does return the government will claim that it was due to their prompt and decisive action of the last year that made the difference, unfortunately this would rather fly in the face of the evidence that other countries (that did not spend vast sums of money) were also on the recovery curve. If the world does turn all cuddly once more I fear that the UK will be the one wearing the hair shirt for many years to come.
The last few weeks have often seen a sea of blue on the dealing screens as virtually every asset class rallies as investors worry about missing out on a prolonged bull run. Today everything is red.. even oil and gold. That Monday morning feeling seems to be well in evidence.
A quick nod at the charts shows that the FTSE has not only underperformed the remainder of the Major Markets ( a key theme last week) but is not the only one to have possibly clicked from bull to neutral. The Dow is struggling to break above 8900 (or even close above 8800), the S&P has pushed above 950 four times but has failed on each occasion to retain a finger hold and the Dax has recorded a whole series of lower trading highs over the past two weeks. This is not evidence that an end to the current bull play has happened but it is a possible indication that dealers should beware a significant pull back.
On the currency front the pound is having to work hard to maintain it recent good run and the failure on Friday to hold the rally versus the dollar may be significant. The dollar is recovering some lost ground to the Euro bloc (including the UK) as the numbers out of Germany continue to show ongoing problems. The woes of the eastern euro bloc are not going to disappear and we risk another battle on the banking front as loans to Latvia, Estonia, Poland et al turn sour. Continued economic weakness is dragging ever more poor and doubtful debt into the mire and the disaster of the UK financial system may well be reflected in some of the French, German, Austrian and Spanish banking giants.
Gold is falling in harmony with everything alse this morning and this must be something of a disappointment to the ‘flight to quality’ merchants. The weakness of the dollar has helped in recent weeks to send the precious metal higher but there is a distinct feeling that investors now have more important things to worry about than getting sucked into another yellow metal bubble. Continued weakness in equity markets would, no doubt, bring back the value proponents but with too many longs in place above the $900 level the fear must be growing of another sharp reversal of fortunes.
August Nymex hit $73.90 on Thursday just shy of the 75 buck target of OPEC but here, again, any reduction in economic expectation could hit prices drastically. The market has had the longest bull move with no serious retracement since Jan/July last year and while we have consistently championed the 75 dollar target for months it must be mentioned that there is now room for a bit of a fall.
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