Capital Spreads Technical Overview – 14 Nov 2012

The downward trend still looks to be intact and even the charts have lots of negativity about them with some of the key moving averages starting to indicate some ominous bearish signals. The FTSE has bounced twice off its daily 200 day moving average around the 5720 level which was visited yesterday and last Friday meanwhile the Dax is on the verge of seeing its 20 and 55 day moving averages cross which is considered a bearish signal, meanwhile for US indices the Dow has already seen this cross of the 20 and 55 and is below the 200 day moving average.

Just looking at the daily charts of the FTSE and Dax and they really do seem like markets have failed too many times at their highs throughout the summer suggesting that buyers are just drying up each time there’s a bit of momentum behind them. So far this year’s November rally that has historically played out is not playing out certainly in the respect of the US indices anyway and big question marks are being raised as to whether we will see any sort of Christmas rally next month at all.

The dark clouds overshadowing markets continue to keep the bulls at bay. What to do about Greece and how to address the US fiscal cliff are really hampering any bulls that remain out there even though there are plenty around who are of the thinking that equities present good value when compared to other asset classes.

This tussle is being won by the bears once again this morning however the FTSE is at least a little higher than where we were calling the index to open earlier. At the time of writing the FTSE is at 5760, down 25 or so showing tentative signs of life but still in the red nonetheless. There was a glimmer of hope for the bulls yesterday as they managed to drag the index into positive territory at the very death of the session but weakness across the pond has poured a bucket of cold water on their optimism. That 5720 level is seen as an important support level for the index as mentioned above not only is it where the 200 day moving average currently sits, but it is where the index has bounced off twice in the past few days.

A few important pieces of economic data are released today with the unemployment figures from the UK, although they are unlikely to move the FTSE much, they could have an effect on sterling and just after then there’s the release of the BOE’s inflation report. This afternoon there’s the retail sales from the US, which could move US markets later. Hurricane Sandy is likely to have had a major affect on retail sales and so expectations are for a decline in the month of October.

The European finance ministers failed to agree on how to address Greece’s financial needs and postponed the conclusion for next week. At the same time, the IMF Managing Director Christine Lagarde seems to have different views on how to tackle the debt troubles which does not help matters either. So it was little surprise to see the euro reaching a fresh low versus the dollar at 1.2661. A late comeback pared some of the losses with EUR/USD pair finishing 8 pips down at 1.2702 and this morning the single currency is a little perkier at 1.2730.

Gold has edged up by around three bucks this morning, snapping a three day decline after it closed at $1724 yesterday. Fiscal cliff concerns in the US have added to gold’s safe haven appeal. However, worries about the debt crisis in Greece have kept investor cautious and prices in check. The precious metal hit a high of around $1920 back in 2011 when Europe’s debt crisis was seen to be gaining momentum, but for the moment the sentiment for the market will come from the outcome of Obama’s address on the fiscal cliff and how the US will proceed with this.

Estimates for a rise in crude oil inventories as indicated by the US Department of Energy pushed the WTI crude prices 21 cents down yesterday to $85.34. It comes on a background dominated by gloomy expectations for the economic outlook in the US or Europe after Japan already announced it slipped back into recession. The weekly stockpiles report will be released on Thursday, due to the Veterans Day holiday in the US.