| UK Daily Hotline 12 August 2010 By J Wong, analyst |
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| Close | Volume | 1 day Change | P&F Trend | Stop | |||||
| FTSE 100 | 5245.21 | 1,046.9m | -131.20 | -2.4% | Bull  | 22 Jul 2010 | 5200.00 | ||
| FTSE 250 | 9854.49 | 306.4m | -225.30 | -2.2% | Bear | 11 Aug 2010 | 10250.00 | ||
| FTSE SmallCap Index | 2790.74 | 54.4m | -28.20 | -1.0% | Bull  | 2 Aug 2010 | 2625.00 | ||
| FTSE All Share | 2706.59 | 1,214.3m | -65.98 | -2.4% | Bull | 22 Jul 2010 | 2700.00 | ||
| Closing prices through Wed Aug 11, 2010 | |||||||||
Time to Short?
Yesterday was a bad day for the market. The US economy is slowing down to such an extent that even the Fedhead Bernanke had to admit the fact. But without additional quantitative easing (QE2), investors fear a further slowdown.
Looking at FTSE100's point-and-figure chart, the bull column finally give way to a bear one. This ends the upward pressure and the short-term trend is now bearish. But the medium-term remains positive because of the still-intact support trendline (see right). Until this line is broken, we will only add shorts gradually - preferably on a rally - rather than rushing into the bear side. Who knows, this could be a bear trap.
Index Breadth
The overbought mid-cap breadth index finally corrects from the 70% level, falling by 5% yesterday. Is this the end of the rally? Possibly, but a further decline is needed to confirm this uptrend reversal.
Stock Action
Is it time to buy back gold shares?
For example, Randgold Resources is showing some life after a steady decline from 6500p (see right). As prices are now at the prior resistance level at 5500p, which may be converted into support, the decline will be increasingly sticky. Momentumwise, it is oversold.
But gold stocks depend heavily on the movement of gold - which is not exactly bullish right now.
Prices need to clear that resistance at 1215 to signal that the consolidation is over.
One factor that could help Gold does that is more money printing, either by the ECB or the Fed (more likely). That would set gold's recovery in motion.
Until then, we maintain a neutral stance in gold but watch to buy.
Turning to other miners, the outlook here is becoming increasingly bearish. The rally in July has been so sharp that many are only beginning to correct the overbought situation.
For example, Kazakhmys retraced less than 50% of the July uptrend after meeting resistance at 1300p (see right). The next level of support is noted at 1100p, thus providing additional downside potential.
Rio, BHP and Vedanta all looked similar and we would not buy them now.
Ferrexpo is also short-term vulnerable after a potential failed break at 300p. Still, the medium-term trend looks bullish. A fall below 260p is needed to challenge this view.
Inmarsat is skating on thin ice. Prices have slumped to the 700p floor. A break there will be negative and leads to more decline. Already, its relative strength is weakening rapidly. We watch to sell.
Also, watch for a downside breakout in Enterprise Inns. Prices have recently sunk below the 100p level, targeting to break the July lows (see right). A break there is technically negative. Watch to sell.
Elsewhere, we highlight a potential buy in Gartmore. Prices have basing for some time, languishing below the 120p resistance since early June. But that is set to change as prices poked its head above the level yesterday (see right). If it is able to maintain this break, we buy.
Our long in Tui Travel was stopped out yesterday after price slammed through the 200p support decisively. We are now mulling whether to turn short. We watch to short some at 195p if prices trade at that level today.
We add a short in Micro Focus (52-week price low) and Mitie (52-week relative low).
RBS had a vicious decline over the past four sessions - one akin to the downleg in early May or late June (see right).
But will this fall lead to a deeper slump? May be. But we are not about to sell RBS now after such a steep selloff. Technically, there could be sideways support at the various moving averages (50 and 200). Plus, RBS's momentum is no longer overbought.
On the contrary, a rebound at around 42-44p may occur. This level is the prior reaction low. Hence, we take a short-term contrarian view and watch to buy at that level, with the stop at 40p.
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