28st March 2011
Equity Index
Overview
Equities across the board last week posted strong gains and continued their recovery from the sharp losses seen in the aftermath of the Japanese Earthquake and Tsunami. Despite negative downgrades on some of the Euro zone’s sovereign ratings and mixed news from the week’s economic releases, markets on both side of the pond showed their strongest weekly gains in months.

Thoughts from the trading floor
Technically, the S&P 500 future continues to show bullish signs with a continuation of the bounce seen off the lows made at 1241.25 at the beginning of last week. The contract closed the week at 1310.00, breaking through resistance seen at 1304.00 and is now trading back above levels seen before the shock of events in Japan. This has left a significant swing low and further resistance will now be eyed at 1327.00 and furthermore, the 2011 highs of 1342.00. Short-term support is seen at 1280.00. The Dax future had a particularly strong bounce last week. After an impressive first hour on Monday the Dax retested the week’s opening lows on Wednesday but failed to break. This paved the way for further gains with the contract closing two previous daily gaps at 6872.5 and 6995.0. Although a strong bounce, the Dax is still some way short of the yearly highs at 7470.0 and resistance is eyed at 7050.0 and 7100-10.00. We would have to see a move below 6730.00 before the bears were back in control.

Although the charts have painted a strong picture this past week, negative news continues to provide the markets with reasons to be cautious. The markets have shrugged off the downgrades of both Spain and Portugal’s government bonds in the past couple of weeks, but after Portuguese politicians voted against the austerity measures proposed by the government, the country may finally have to seek a bailout from the EU.

Over the weekend there have been more violent clashes in the Middle East and further political unrest may cause traders to look to book profits on recent longs. The situation with Japan’s nuclear plants also remains a danger. While the markets have showed little worry recently over the situation, further radiation leaks must provide a cause for concern as we enter the third week since the Earthquake struck.

Important events this week

● Monday: Pending Home Sales
● Tuesday: UK GDP Final Q4, US Consumer Confidence
● Wednesday: ADP Jobs Report
● Thursday: US Chicago PMI, US Initial Claims, US Factory Orders
● Friday: US Non-Farm Payrolls, ISM Manufacturing

Bull View
After an impressive bounce following the Japanese Earthquake, the bulls are firmly back in control and will be confident of testing the 2011 highs of 1343.00 in the medium term.

Bear View
Bears will look for further negative news on the Eurozone economies as evidence of continued unsolved problems, along with clashes in the Middle East to try and regain some downward momentum that was reversed last week.

Futex View

We were bearish last week but despite a general negative news-driven week, the markets proved to be surprisingly resilient. Although in the longer term we expect the highs to be tested, we will look for some profit taking going into the month and quarter end, especially after the strong bounce witnessed in the last two weeks.

07^th March 2011

Equity Index

Overview

Last week equities were largely range-bound. The market had a sharp sell-off on the 1^st trading day of the month, which broke the sequence of bullish 1^st of the month buying. However, having then settled into a steady move higher over the course of Wednesday and Thursday, they came under pressure following the US employment report on Friday. This week sees very little economic data outside of the Bank of England monetary policy report. This should allow an easy development of market moves and give us a good indication for market themes going into the rest of the month.

Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish in the short-term. Support at 1291.50-92.50 is important and as long as the market can hold above here, a challenge of resistance at 1343.00 (recent high prints) remains on the cards. The sell-off observed on Friday saw European equity futures markets test key support levels, 7125.5 on the Dax future and 2923 on the EuroStoxx future. The S&Ps remain firmer than their European counterparts with the market testing the 1311.00 support level on Friday’s move lower. In terms of near-term resistance, the S&P future is capped by the 1332.50-36.50 area, the Dax by the 7316.0 level and EuroStoxx is capped by resistance at the 3000 handle.

This week traders will continue to follow the political developments in the Middle East. Recent days have seen an escalation in violence in Libya which resulted in the Middle-Eastern indices suffering further losses. The overriding fear is that the unrest spreads to Saudi Arabia. In this scenario, equities would come under severe pressure whilst oil would spike significantly. In response, oil is trading at fresh highs not seen since the onset of the liquidation phase of the credit crunch. However, one must be wary of these moves as we have seen the USD continue to remain under pressure across the board in spite of the geopolitical tensions and thus it seems likely that there are larger forces at work in the commodity markets.

Friday’s US employment situation report was met with disappointment by the markets. Although the fear of escalating Middle-East tensions aided the move lower in equity indices, we saw the USD sink in response to the report. This may indicate the market’s intentions going forward as the broad trend of 2009-2010 with the USD lower resulting in higher commodity prices and equities may come back into vogue. The basis of this trend was largely on the back of market expectations that the Fed will keep monetary policy very loose.

Important events this week

• Thursday: BOE monetary policy announcement, US Jobless claims
• Friday: US Retail Sales Report.

Bull View

As long as the monetary stimulus is in place, Bulls will remain confident of an ongoing medium/long-term rally. Their next target in the S&P 500 is 1441.00.

Bear View

Bears will continue to look for further catalysts for a deeper correction and will be hoping weakness at the end of last week can follow through this week.

Futex View

We would back further weakness this week. The market has started to show signs of some short-term weakness and we would back further declines heading into the rest of the month.

28^th February 2011

Equity Indices

Overview

Last week equities traded sharply lower as they looked to correct after strong monthly gains over the course of this year. The S&P cash made lows below the key 1300.00 handle. The market retraced a good chunk of the week’s losses on Friday, a follow through from the bounce seen on Thursday evening.

Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish in the short-term. Support at 1291.50-92.50 is important and as long as the market can hold above here, a challenge of resistance at 1343.00 (recent high prints) remains on the cards. The market found a floor late last week below the daily trend line, which is at 1301.00 today. The market was unable to force a daily close below here, which should aid the cause for the bulls. The 1320.00-1322.00 remains the major stumbling block, in the short-term, for bulls. Another key failure around this level may result in an extended sell-off targeting a break and close below the daily trend line and thus a deeper correction. A move back above here in the next day or two should then target the recent highs.

This week traders will continue to follow the political developments in the Middle East. Recent days have seen an escalation of violence in Bahrain and Libya, which resulted in the Middle-Eastern indices suffering further losses yesterday to fresh 9-month lows. The overriding fear is that the unrest spreads to Saudi Arabia. In this scenario, equities would come under severe pressure whilst oil would spike significantly. Currently, this remains a tail risk; howeve,r market investors hate political instability and further tensions will cause headwinds.

Tomorrow is an important day for the markets as Fed’s Ben Bernanke makes his key semi-annual speech. In this event, Bernanke will outline the Fed’s strategy going forward. As ever, the outlook for the economy and the FOMC’s policy towards their Q.E. package will be the highlight. We have started to see a raft of voices from the Fed suggesting that some members have started to turn hawkish. However, Bernanke has maintained that the Fed’s mandate towards employment will need to be fulfilled before they head towards a sustained exit strategy. Dovish comments may be taken as a green light to buy equities and other risk assets. Notably, the USD has continued to show weakness, and dovish comments may thus result in further selling of the USD and buying of risk assets. Alternatively, a hawkish speech may result in another round of panic liquidation of risk assets and thus force a deeper correction in equities heading into the Non-Farm payrolls report on Friday.

Important events this week.

• Monday: Chicago PMI report (US)
• Tuesday: ISM manufacturing report (US), Bernanke’s key monetary policy report.
• Wednesday: ADP employment report (US)
• Thursday: ECB monetary policy announcement.
• Friday: US Employment situation report.

Bull View

As long as the monetary stimulus is in place, Bulls will remain confident of an ongoing medium-long term rally. Their next target in the S&P 500 is 1441.00.

Bear View

Bears will continue to look for further catalysts for a deeper correction and will be hoping weakness last week can follow through this week.

Futex View

We would back further weakness this week. The market has started to show signs of some short-term weakness and we would back further declines heading into the rest of the week.

21^st February 2011

Equity Index

Overview

Last week equities performed well posting further gains as the S&P 500 Future claimed its highest close of the year at 1343.00. This week may start off slowly as Monday volumes will be lower as a result of a public holiday in the US. Despite this activity should pick up with traders particularly focused on US Consumer Confidence and Durable Goods numbers.

Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish. Support at 1313.50 is important and as long as the market can hold above here a challenge of resistance at 1441.00 remains on the cards. The only stumbling block could be daily resistance at 1372.00.

This week traders will continue to follow the political developments in the Middle East. Recent days have seen an escalation in violence in Bahrain and Libya which resulted in the Dubai indices suffering its worst down day of the month on Sunday. The overriding fear is that the unrest spreads to Saudi Arabia, in this scenario equities would come under severe pressure whilst oil would spike significantly. Currently this remains a tail risk however market investors hate political instability and further tensions will cause headwinds.

Another potential headwind facing the equity bulls is the fear of sooner than previously anticipated rate hikes. Although for now US inflation appears to be relatively contained the same cannot be said for the UK. Last week the latest data showed that UK inflation was continuing to rise as the headline figure reached 4%. The increased speculation that the BOE will increase rates over the next two months gained extra credence as MPC member Sentence hinted that another one of his colleagues had joined him in calling for higher rates potentially taking the number of dissenters to three. We will find out whether this is the case on Wednesday when the latest BOE minutes are published. If the indeed there are further calls for rate hikes this could see equities come under pressure as a move is more aggressively priced in.

Important events this week.

• Tuesday: Consumer Confidence (US)
• Wednesday: BOE Minutes, Existing Home Sales (US)
• Thursday: Durable Goods Orders (US), New Home Sales (US)
• Friday: GDP (P) (UK)

Bull View

As long as the monetary stimulus is in place Bulls will remain confident of an ongoing rally. Their next target in the S&P 500 is 1141.00.

Bear View

Bears will continue to look for catalysts for a pullback and will be hoping weakness in this week’s releases can provide it. They will also be keeping a keen eye on developments in the Middle East; particularly regarding Saudi Arabia.

Futex View

It remains hard to fight the current uptrend so we remain on the sideline looking for an opportunity to enter from the short side.

14th February 2011
Equity Index
Overview
Last week equities performed well posting further gains as Mubarak’s resignation and reassurances of continued stimulus from Bernanke boosted confidence. This week is cluttered with economic releases including the latest retail sales number and inflation data from the US.
Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish. Support at 1299.50 remains important and as long as the market can hold above here a challenge of resistance at 1441.00 remains on the cards. The only stumbling block could be daily resistance at 1372.00.

Last week, Portuguese 10 Yr Government Bond yields rose to their highest levels since the European sovereign debt crisis began. As the yields rose, European indices came under pressure particularly the IBEX 35 where losses were led by banks. However, these moves were short-lived as the ECB stepped into the market to purchase government bonds. This step almost immediately reversed all the moves and appeased any short-term tensions that had entered the market. Despite these interventions, this remains an unsustainable solution which will undoubtedly end in Portugal seeking an Irish-style bailout. This would immediately place a large drag on the Spanish index and provide substantial headwinds to the ongoing equity rally.

Last week, China hiked their base interest rate by 0.25% to 6.06% causing a quick money selloff in equity indices worldwide. This move retraced within a couple of hours and was soon forgotten. However, this is very unlikely to be the last rate hike from China this year as they try to prevent a hard landing from strong growth. This will concern equity bulls as a significant reason for the recent equity strength has been the resilient Chinese growth story. Signs that this may be slowing could provide a signal that Western stock indices may be reaching an interim high.

Important events this week.

• Tuesday: CPI (UK), ZEW Survey (Ger), Advance Retail Sales (US)
• Wednesday: FOMC Minutes
• Thursday: CPI (US), Phili Fed
• Friday: Retail Sales (UK)

Bull View
The bulls still remain in charge and will hope that inflation data remains low this week, encouraging ongoing Federal stimulus.
Bear View
Bears will continue to look for catalysts for a pullback and will be hoping weakness in this week’s releases can provide it.
Futex View

It remains hard to fight the current uptrend so we remain on the sideline looking for an opportunity to enter from the short side.

31^st January 2011

Equity Index

Overview

Last week equities again struggled as instability in Egypt and weak UK GDP scared investors. This week we see a packed release schedule with the latest ECB rate decision and US Jobs Report the most anticipated. In addition, the instability in Egypt will continue to affect market trading.

Thoughts from the trading floor

From a technical perspective the S&P 500 futures have struggled over the last couple of weeks, forming a daily double top around 1299.50. This will now prove an important resistance level over the next few weeks. A failure to break above here could quickly see the market descend to 1245.50, with further support at 1216.00.

Last Friday we saw a deterioration in the situation in Egypt as political instability led to a county-wide curfew in an attempt to curb protesting and rioting. This resulted in a worldwide fall in equity markets as investors fled to safe havens. The main fear is that the social tensions will overflow to neighboring Middle Eastern countries. This was highlighted in Dubai where the main index dropped 4.3%, its largest one day fall in eight months. There are also concerns that the troubles will lead to interruptions in shipping passing through the Suez Canal, a key trade link for Western Europe. Over the weekend there have been few positive developments so we expect the story to influence equity indices throughout the week. Simultaneous rallies in AAA government bonds and Oil prices will be a good indicator that not all is well.

This week traders will focus on two events. Firstly, the latest ECB statement in which we will find out if ECB president Jean-Claude Trichet will further underline the short term inflation fears he raised last month. Traders will also be listening out for an increase in the rate at which the ECB lends to banks after sources last week hinted that they were going to try and combat the problem of “addicted banks”. Secondly, the latest US Jobs report released on Friday will, as always, provide an opportunity for volatility and an insight into the strength of the US economy. If we see further weakness here, this may be a final nail in the coffin of the long lasting equity rally.

Important events this week

• Monday: Chicago PMI, Exxon earnings
• Tuesday: ISM Manufacturing (US)
• Wednesday: ADP Employment Change (US)
• Thursday: ISM Non-Manufacturing (US),  ECB Rate Announcement
• Friday: Change in Non-farm Payrolls (US)

Bull View

Bulls will be keen to regain the initiative. To do this their first goal will be to break above the double top formation at 1299.50. A swift resolution to the Egyptian situation, accompanied by a solid jobs report on Friday, could provide the catalyst for this move.

Bear View

Bears will hope that the recent weakness is the beginning of a correction which could yield a 10% drop from the high. As many indicators point towards the S&P 500 being overbought, they must be confident of continued weakness.

Futex View

We believe the world equity markets will be very volatile this week as traders try and digest a lot of information. Deterioration in the Egyptian situation could provide the catalyst for a sizable correction in equity prices.

24^thJanuary 2011

Equity Index

Overview

Last week the US equities lost ground for the first time in 2011 as fears of the Chinese economy overheating gripped the market. This week traders have a lot to get their teeth into; we will see the releases of the latest GDP numbers in the UK and US as well as the FOMC Rate decision. In addition earnings season continues with many US firms including Microsoft and Caterpillar releasing figures.

Thoughts from the trading floor

From a technical perspective the S&P 500 continues to look strong, however at current they are struggling to hold above support at 1277.00. A failure to hold above 1277.00 could see the market fall back to 1245.50 with further support found at 1216.00.

In the last few weeks we have seen Trichet warn of short term inflation risks at the latest ECB press conference whilst UK inflation continues to rise to worrying levels. This poses the central banks with a serious dilemma, it is clear that the main drivers in the recent inflation rise are commodity and Oil prices; not overheating domestic economies. In such instances we can consider that the inflation is being imported and rate rises will simply sacrifice domestic growth to the benefit of countries currently better positioned. However the central banks mandate stipulates that they must control inflation, to do so their main tool is interest rates. Rate changes are a crude tool which fail to provide the subtlety central bankers crave but at this stage they find themselves with few options.

If inflation continues to rise particularly in the UK we may see the BOE forced into a rate move they struggle to justify from a macro growth perspective but they deem necessary to stave off price rises. This would have a serious negative impact on any recovery as it would put overwhelming pressure on mortgage and credit markets placing substantial downward pressure on house prices and spending levels. This would undoubtedly have a large negative impact on equities as future growth levels would be revised much lower. The main way that such a scenario may be avoided is if we see a drop off in world commodity prices, the most likely catalyst for this being a slowing in the Chinese economy. This could either come about naturally or more likely through aggressive tightening in monetary policy. In either scenario world equity markets would take a nose dive as so much current world growth levels are associated with China. Considering all of this any further signs of inflation in the UK or Europe may be the signal that the current bull market is reaching its peak.

Important events this week.

• Tuesday: GDP (Advanced) (UK), Consumer Confidence (US)
• Wednesday: New Homes Sales (US), FOMC Rate Decision
• Thursday: Durable Goods Orders (US)
• Friday: GDP (Advanced) (US)

Bull View

Bulls will now be targeting resistance at 1313.50 hopefully aided by strong data releases this week. Their main concern will now be profit taking as investors look to realise profits after 18 months of strong performance.

Bear View

Bears will desperate to see the S&P drop below 1277.00 opening the door for a break lower. Continued inflation fears could support their cause.

Futex View

We believe that the current bullish trend in equities is coming to an end and a pullback is around the corner. When it finally arrives it will likely be aggressive; further European sovereign concerns may provide the catalyst for the move.

17^th January 2011

Equity Index

Overview

Last week equities continued to push higher buoyed by strong earnings from JP Morgan and easing fears amongst European peripherals. On Friday the S&P 500 future reached an annual high of 1290.00, a level that represented the market’s highest point since September 2008. This week traders’ focus will be on US earnings with many large US firms reporting including Goldman Sachs and GE.

Thoughts from the trading floor

From a technical perspective equities continue to look strong. The S&P 500 future has achieved gains for seven straight weeks and shows few signs of slowing. Last week bulls achieved their primary objective of consolidating above key resistance/turned support at 1277.00. This week they will need to capitalise on this technical break or risk facing a loss of momentum; their next objective being a test of resistance at 1313.50. A failure to hold above 1277.00 could see the market fall back to 1245.50 with further support found at 1216.00.

Last week witnessed the beginning of the earnings season which to all intents and purposes got off to a strong start. JP Morgan comfortably beat expectations setting the tone for this week’s releases. This week’s focus will be on other financials including Goldmans and Morgan Stanley. US bellwether General Electric is also scheduled to report, their numbers always garnishing substantial attention and one definitely to watch. We expect the strong tone set last week to continue providing world equity markets with a further boost.

Last Thursday the ECB announced their latest interest rate decision which, as expected, was unchanged. However, Trichet did manage to surprise the market during his press conference when he raised his concerns regarding short-term inflation. This provided equity bulls with a shot across the bows as it increased fears that rate hikes may occur sooner than anticipated. At this stage no rate hikes are priced-in in the short term, so if we see a general toughening in language from leading Central Banks, this would have bearish implication for equity indices.

Important events this week.

• Tuesday: Zew Survey (GE), Citigroup & Apple earnings
• Wednesday: US Housing Starts, Goldman Sachs’ earnings
• Thursday: Phili Fed, MS earnings
• Friday: Retail Sales (UK), IFO (GE), GE earnings

Bull View

Bulls will now be targeting resistance at 1313.50, hopefully aided by strong earnings this week. Their main concern will now be profit-taking as investors look to realise profits after 18 months of strong performance.

Bear View

Bears will be desperate to see the S&P drop below 1277.00 opening the door for a break lower. Trichet’s comments last week regarding inflation will have given them hope.

Futex View

We believe that the current bullish trend in equities is coming to an end and a pullback is around the corner. When it finally arrives it will likely be aggressive; further European sovereign concerns may provide the catalyst for this move.

Last week equities performed strongly with the S&P 500 future setting new 2010 highs; peaking on Friday at 1241.50. This week sees a busy economic calendar with many releases.  Traders will be most concerned with the latest FOMC rate decision and US Retail Sales both released on Tuesday. (more...)

The S&P saw choppy trade yesterday.... (more...)