As feared yesterday was a particularly dull experience and markets did (as expected) look at the top end of the ranges before drifting off into the afternoon.
Results out this morning are pretty much a mishmash of good, bad and ugly but, importantly for the indices, the big players seem to be getting most of the ‘good’ with the smaller caps being inflicted with the ‘bad’ tag. This is naturally a consequence of poor economic environments where larger companies are able to rely on core revenue streams and also have a more substantial ability to cut costs in the face of slower growth. Smaller corporate entities will naturally do better in strong economic periods where new business has a greater percentage impact on revenues, but unfortunately has the opposite effect when times are tough where lost revenue is much more impactful to bottom lines.
Our clients remain massively positive on single stocks whilst at the same time shorting the major indices. Not aggressively short but enough to negate the equity long. People do find it difficult to be short of any single equity, except in extreme situations, as the natural bear stance is just to not have a position but with many of the big indices right on the major resistance levels it is equally natural to be tempted into a short. So far this year we have pushed at the highs a number of times and it has paid off to sell short at anything above 5800/5900 but traders should ensure that they have their exit strategy in place as well.
This morning sees us once again pushing at the envelope to the upside with the S&P now above the 1406 resistance level which might get a bit of interest as dealers worry about a potential squeeze on Shorts. In the light markets that we are experiencing it cannot be over emphasized that if momentum manages to build for a direction the prices could well move substantially further than expected. With companies sitting on large cash piles, dividends seemingly well covered and interest rates likely to remain ultra low for some considerable time the prospect of a shift in equity values may be higher than has been the case for some time.
Standard Life’s numbers were better than expected just prior to the open and we can expect, with cost cutting the buzz word of the day, that margins may well improve going into 2013. Margin improvement is mentioned all across the boards these days which (whilst being bad for job hunters) might add to equity attraction. Germany and France also both managed to slightly better expectations on GDP (although this may lend quite a bit to the recent falls in the Euro) and so we start the day on the front foot with traders pulling on their buying boots.
The FTSE does have quite a bit of volume and price resistance above here but bulls will be looking for a move towards 5920/25 and then the highs of the year up at 6000. Bears will be eying the heavy resistance and going for another failure at these levels with the first target being a drop to the support at 5785/95 and if this fails a return into the doldrums of 5450 to 5750 range.
The Euro is, as I write, pressing on the resistance level that I mentioned yesterday, i.e the falling trend line which is now at 1.2375/85. If this breaks there may be some short covering and the bulls will be looking for an initial target of 1.2450/55 and then there is not much price resistance until 1.2625.
Euro bears, and there are a lot of them, will be hoping that the resistance will hold and be rejected which would open the way for a retracement back below 1.23 with the ultimate aim being an attack on the yearly lows down at 1.2055
Gold rejected the 1630 level again (in fact it did not get closer than 1626 this time) and the initial pull back was quite violent pulling us down to 1607 in yesterday’s session. But since then the buyers have drifted in again to nearly halve the loss and we are currently at around 1615. In truth this is a very difficult call, Friday’s activity was an ‘outside day’ with a ‘lower low’ a ‘higher high’ and a higher closing price. This is often an indication of a break out, but yesterday’s action may have negated this technical trend. The medium trend (three years) remains bearish but both the very long (ten year) and short term (six month) remain bullish. Whichever way it goes someone can say the technicals backed the move!