Quarter End

Despite impressive gains for the quarter, the market ended on somewhat of a whimper. Despite promises of unlimited money, and the initial market spike, it may be that the realities are starting to hit home. Productivity around the globe is slowing sharply almost as an inverse to the global debt that is rising sharply. This month will see weak company earnings and we suspect very guarded guidance going forward. However, with plenty of shiny new money available and an impending election, volatility could well be on the cards. We will be looking to short at or above 1460, with a maximum of 7 contracts and a stop loss 3 pts above the previous top. We see resistance at the 1415 level, so would set that as a target should we have the chance to enter the market.

QE v Earnings Headwinds

With the end of the month and quarter occurring this week, we will wait for the final print of the market's number, which will then shape our thinking into the year end. Although a down week from overbought conditions this last week, it was hardly worth mentioning. Indeed, very sideways conditions may exist until the market fully digests the full consequences of QE, intended (One-off dividend payments) or UN-intended (One-off dividend payments) !! We are also on the cusp of a reputedly dire earnings season, with numerous companies issuing profits warnings. We feel a titanic battle will ensue as the powers that be would not want the market to fall when staring an election in the face, however technicals (the charts) and fundamentals (the earnings) both crying out for a pull-back. Short-term we feel a top could be in the market at the 1475 level and will be monitoring this level closely.

Game Changer

After last Thursdays announcement from the US Federal Reserve of  'unlimited' QE (or QE infinity, as some people are calling it), the game has truly changed. Some commentators and optimistic fund managers are hoping this will provide a permanent floor under the markets and the index will grow to the sky !! Unfortunately, things do not work quite this way. While it is perfectly feasible that earnings multiples may expand and valuations increase, it is also true that the market will anticipate this and also begin to factor in that the central bankers have indeed used their last silver bullet, re-modelling on that very basis. Unfortunately, the shock news on Thursday did cause the market to 'pop' once more and trigger our stop, frustrating to say the least, but acceptable in the context of QE becoming a known 'known'. Our model obviously still shows the market as severely overbought, but with the month and quarter end just around the corner we will let discretion trump valour while the market digests this truly shocking news.  

Down, But Not Out

A topping out process, by it's very nature, can always take longer than expected especially if central bankers are determined to throw good money after bad. Disappointing though this last weeks rally was, and our corresponding stop order being filled, it has created a strong overbought condition by fulfilling a stage 4 weekly break which has in the past created a ceiling price before a multi-stage correction. We are therefore suggesting this week to re-enter our short position with a max of 12 contracts at any price above 1437.0. We will put a stop in @ 1456, and a partial target price of 1395 where will take profits on half our position.