Dull but solid. Markets consolidate at the highs

Discussion in 'Market Commentary' started by SimonDenham, Jun 8, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    Markets remain solid this morning although slightly off from their highs. The Dow had several ‘looks’ at 18000 but in the end got a nose bleed and slipped away from the heights later in the NY session. Dealers will be expecting that this is just a temporary retracement though as the overall trend in the States over the last four months has been solidly bullish. Of course the market will have to overcome the nervousness that seems to arise whenever we get above these levels but the bulls are, no doubt, confident.

    Of course, to be equal handed, the bears will be just as optimistic. The market has been up here before quite a few times (2014..2015..2016) and each time has shied away from the peaks.

    Over in Europe the ECB is continuing with its bond purchasing program and today is the day when it extends the asset classes to corporate bonds. The program already has over 1 trillion euros of assets and is scheduled to continue or another year. If the economies of Europe do not start to pick up soon then this could become a Japanese ‘me too’ and we could end up with the central bank buying equities as well.

    The ECB has got itself into a bit of a tight corner over the asset purchase program in that the market is now dependant on this ‘buyer of last resort’. With the program buying 80 billion of assets a month illiquidity is becoming a problem and asset prices are unreasonably high. If the ECB buys less than expected or even calls a halt to its actions the bond market would probably collapse and along with it the equity markets as well.

    Still.. a problem for another day.

    Bit of fun over in the states as the LendingClub falls 7% after the company cancels its annual shareholder meeting.

    The LendingClub was supposed to be the ‘new way’ in banking with cutting edge silicon valley technology and smart client interaction but the stock has slumped some 80% since its float a year or so ago. Rather demonstrating that ‘banking’ is a bit harder than just a bit of high end software and noble intentions.

    Economic Data

    Interesting data out of China with the May YoY imports number suddenly surging whilst the Exports slumped. This data is quite volatile so we can expect that there will be amendments to future months but overall the falling Exports figure has become something of a concern for the country. If they are looking for 6% GDP growth for the Year this would indicate that domestic demand must take up the slack as (obviously) export demand is actually falling.

    The only other numbers due today are industrial Output figures from the UK which are expected to be flat on the month and manufacturing Output which is similarly moribund.

    Indices

    FTSE

    Yesterday’s strength rather wilted in the sun as the session progressed with the early optimism slowly draining away as the day passed.

    In the end we were just 11 points to the good which compared badly versus the Dax’s 166 point rally and this morning we are being called marginally softer before the open at around 6270. Although we have slipped a bit the markets still seem quite solid with continued buying from our clients who seem totally unfazed by the Brexit question.

    Support is at 6175/85, 6045/50 then 5980/90

    Resistance is at 6340/50 then 6410/30

    DAX

    As mentioned the DAX had a very good day yesterday as both the UK and US markets rather ran out of steam. The pent up demand from previous sessions when the German market had rather lagged behind was released in a frenzy of buying and shorts were presumably carried out in van loads.

    This morning is slightly different with early indications for a small drop to around 10250 in generally small volumes. Traders will be cautious that a reversal does not get too much traction as a failure here would be concerning.

    Support is at 10160/70, 10090/00, 10030/40 and 9880/90

    Resistance is at 10280/90 then 10350/60 and 10410/20

    Dow

    As mentioned yesterday

    “The Dow is just under the 18000 level in early action this morning continuing on from the late moves higher yesterday. Dealers will be mindful that the 18000-18300 level has proved something of a graveyard for the bulls in recent years so there will be a certain amount of caution BUT as we have commented many times over the last few months there is not much value in cash, bonds and property so the search for yield may well push equities above ‘reasonable’ valuations.”

    The caution came to the fore in the end as buyers just did not feel quite confident enough this time to press the issue. Only a very few longer term holders will be sitting on losses at the moment so the pressure is on the shorts but is this pressure enough to trigger further rises?

    Support is at 17870/80, 17710/20, 17605/15
    Resistance is at 17995/05, 18050/60, 18215/25

    FX markets

    Euro

    The Euro has slowly had the life squeezed out of it over the last 24 hours and we are still just under resistance at 1.1365/75 which is where we were this time yesterday.

    So we said yesterday and aside from replacing the words 24 hours with 48 hours nothing much has changed. Maybe we could say that resistance is a few pips higher at 1.1370/80 but nothing more.

    The entire trading range since the effects of the NFP release had dissipated could be covered by a small paper napkin and truth be told it is tempting to just toss a coin to try to guess which way we will go next.

    Support is at 1.1320/30, 1.1223/35 and 1.1110/20
    Resistance is 1.1370/80, 1.1460/70, 1.1590/00 then 1.1720/30


    Sterling

    Buyers in the pound tried to recover the highs of yesterday’s flash rally but after solid attempts at 1.4600 came to nothing we have rather drifted away since.

    The Brexit warnings are having a smaller and smaller impact these days and even the polls showing the Exit side is actually gaining credence is not causing the woe that it did in the past. There is a growing implication that Parliament will veto any exit vote no matter what the electorate decide… or, in time honoured EU style, we will have another vote ‘just to check’ the referendum result.

    Support is at 1.4440/50, 1.4380/90, 1.4320/30 and 1.4250/60

    Resistance 1.4560/70, 1.4745/55, 1.4810/20 1.4915/25


    Gold

    Gold is moving back up to the 1250 region again after the rejection of the 1240 support through two sessions of pressure. Now the attention will turn to the upside as we probe resistance. In truth we look range bound.

    Support is at 1240/42 1228/30 1216/18, 1204/06

    Resistance is 1250/52 and 1266/68 then 1277/79

    Oil

    Oil has forced its way above 51 bucks and is looking quite comfortable at the new levels. There is some minor selling pressure in early action today but nothing concerning to the longs. There have been no big pull backs in the rally since it began back in February and the trend looks solidly set. Indeed, at the moment the only worried people will be the shorts.

    How much longer the rally can go on for is the only question. One assumes that much above 50 bucks is tough as this is the point at which the marginal production can kick in but this is just an opinion. It would ned to remain up here for quite some time before producers risks the costs or recommencing extraction.

    Support is at 50.40/50 48.60/70, 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 51.70/80 and 52.05/15
     

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