As we get towards the end of the week traders will be reminded of Clint Eastward’s “do you feel lucky, Punk” seminal catchphrase.
Last weekend our clients either had an unexpected windfall (after the markets surged due to the Spanish ‘banking bailout’ trumpeted over the weekend press) or had an exceptionally painful day when price gaps handed them a painful lesson in risk/reward. We can expect to see quite a bit of position flattening over the next 48 hours as the Greek electorate makes its choice between a quick execution or a long lingering painful death spiral.
The major problem is that we do not really know how markets will react to either result. Plumping for a quick exit might be seen as good for the markets as at least a decision would have actually been made and if the chaos is serious enough may well bring other nations to their senses over their respective fiscal responsibilities. But I would not hold my breath. Growth is likely to be elusive over the medium to long term as more and more funds are diverted to propping up the status quo.
In the UK this is mirrored by the huge pension deficits for corporate Britain. Companies will be forced to divert ever increasing sums into the respective pension pots taking it away from investment and sales. With the BOE looking likely to press the QE button once again the swings and roundabouts similes will have another day in the sun. The effect of the BOE driving down Gilts yields even further to release liquidity needed elsewhere will be matched by UK plc pulling in its new investment plans another notch.
Oddly enough equity yields are now looking exceptionally good when you consider that, if you consider all potential liabilities, it could be argued that the average company is in a better fiscal position than virtually all the OECD sovereign nations. Equity markets may well suffer badly in a collapse of the EU project but investor must currently still operate from the viewpoint that the politicians and central bankers will print any amount of money to hold their shining achievement together. In this environment we might conclude that the huge piles of investment cash waiting for a home might start to dribble back into play.
The FTSE is opening on the soft side this morning but not exceptionally so even though the opening few minutes managed to give a thirty point rally, followed by fall, followed by rally etc. Dealers are getting shorter and shorter term with our clients closing out short term profits/losses within minutes of opening them. In truth it is difficult to argue for taking a longer term view on indices as direction is becoming so random that a healthy profit can disappear in a second often for no reason that can be seen. We are pretty much in the middle of the weeks move so far and almost exactly at where the futures closed last Friday night (mind you we have been 100 higher and lower in the meantime).
There is resistance on the short term falling trend line at 5480 (where we actually reached early today) and then at 5505/15 and higher at 5570/75 on the support side we can see 5430/35, 5405/10 and 5380/90.
The US markets are equally spooked but there does seem to be a greater appetite to buy stock (aside from Facebook of course) as longer term players are making high profile investments. Immediately the Dow is supported at 12510/25 and 12475/85 (which is also the short term rising trend line support) for stronger levels 12400 is an obvious level where we have bounced a couple of times over the last week and 12320/30 which was support at the end of May.
This is a very difficult one to play as even the professionals seem undecided about what is good news for certain currencies and what is bad. After last weekend it would be a brave trader who committed to much in close of play positions tomorrow and we are likely to see flattening.
The Euro (currently quoted at 1.2580/81) seems to have settled into the 1.25 region reasonably comfortably but any speculative exit of weaker member states might draw in buyers. Further printing will drive it down. Longer term we are probably looking at 1.18 to 1.42 being the range but where it will go in the meantime is anyone’s guess. Support is at 1.2545/55 and 1.2520/25 resistence is actually at 1.2595/1.2605 (just above current levels) and then 1.2640/50
Cable which in recent days has traded all the way down to the major support levels at 1.5250/1.5300 (which has dominated for two years) seems to have decided, as with the last four attempts at this level, that there is not enough reason to drive it lower just yet. If economic numbers continue to disappoint coupled with further QE and lower interest rates the attraction of the ‘Pound in your Pocket’ may wane even further. It is only a few weeks ago that we were looking at pressure to the top end in the low 1.60’s. The fact is that Sterling has oscillated in a 12 cent range from 1.5250 to 1.6450 (roughly) for nearly two years. And shows little appetite to break out. Today sees support at 1.5470/80 and 1.5440/50 resistance is at 1.5505/15 and 1.5535/45
Gold is still unable to get below the 1520/50 range and has now bounced once again from this level (although the attempts are getting ever more frequent). Also the rallies seem to be petering out at low and lower levelsand we really need to get above (and hold) 1640 and then 1670 to reignite a strong buying pool. In the meantime the daily ranges continue to be quite large (and attracting our clients) offering opportunities to win and lose on a very short time scale. Support is at 1615/16 and resistance at 1622/24