|UK Daily Hotline
3 May 2013 By Dr J Wong, analyst
|Close||Volume||1 day Change||P&F Trend||Stop|
|FTSE 100||6460.71||714.4m||+9.42||+0.1%||Bull||25 Apr 2013||6200.00|
|FTSE 250||13930.2||165.9m||-99.12||-0.7%||Bull||25 Apr 2013||13500.00|
|FTSE SmallCap Index||3818.86||90.1m||-4.58||-0.1%||Bull||12 Jan 2012||3700.00|
|FTSE All Share||3406.57||645.4m||+9.68||+0.3%||Bull||25 Apr 2013||3280.00|
|Closing prices through Thu May 2, 2013|
Monetary easing buoying equities....
The European Central Bank (ECB) delivered what the market wanted - a 25bps rate cut. This helped to boost the bullish sentiment. What is more, the Fed recently indicated that it is willing to entertain the idea of adjusting QE4 - up or down - if the labour market sags. Investors conclude that this could be good for equities if unemployment goes up, as the Fed would be printing more than the current program of $85 billion/month.
Unsurprisingly, the S&P hit a new all-time high again. It is on the verge of closing above 1,600 for the first time (see right). If successful, another 5% to the upside is likely.
Turning to the bond market, investors are also having a good time here.
Look at the European 10-year bond yield. The rate is approaching the all-time low of 1% as the ECB said it is willing to tolerate negative rates. Prospect of further easing is forcing the entire yield curve lower. A downside breakout below 1% later this year is a near-certainty. (To me, it seems European yields are turning Japanese.)
Bottom line: With major central banks pumping liquidity as much as they can, no wonder equities are blasting through the roof. Stick with the major trends and overweight equities on an investment basis.
N.B. Due to a national holiday in the UK, the next hotline will be published on Tuesday 7 May.
The FTSE100 breadth chart lost another 2% to 57.4% (see right). Is this the end of the rebound? Perhaps, but it needs a break below 50% to confirm this. For now, I anticipate short-term choppy action.
Many stocks closed at new long-term highs yesterday. I highlight some of these interesting instruments.
British American Tobacco - is edging above the 3600p resistance. This affirms the long-term uptrend. Overweight; stoploss at 3545p.
Kingfisher - was flagged as a bull last month as prices surged above 300p. Indeed, prices are now taking out the 2012 highs. The next target is 340-350p. Stay overweight here.
Telecity - rallied above the 950p major range resistance this week. This affirms the multi-month uptrend from 800p. Its relative strength is also about to break out of the base. A trading long.
Greene King - is about to take out the March highs as the uptrend strengthens (see right). The pattern of rising medium-term lows indicates investor accumulation. A trading long.
CSR - looks like it is about to run upwards as prices edge above the 500p round number resistance (see right). The recent consolidation stayed firmly above the 50-day movign average. A good trading long.
As gold and silver prices rebound, I now feel more confident on the equity sector.
I double the long in Johnson Matthey and Petropavlovsk. The former is about to break above the major range resistance at 2500p (see right).
I watch to buy more Fresnillo too.
Next, BG was stopped out as prices gapped above 1100p (see right).
But I have Tullow Oil to ease some of the losses here as it closed at new year lows.
I add two more new longs today: British American Tobacco and CSR.
When Gold slumped on Wednesday, many thought "here we go again". But no. The bulls came in swiftly and provided a floor on the metal. As such, no downside follow-through occurred.
At the time of writing (7.30am), gold is trading above $1,470, meaning that the recent dip has completely reversed.
What next? Will the bulls break $1500? Given the pattern we are seeing since $1,350 - higher lows - the bulls will be tempted to charge at that ceiling. Hence, I think gold may trading in between 1400-1550 over the summer. Watch to buy at the lower side of the range and sell at the higher side.
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