Shares Weaken as FTSE 100 Falls Below 20 Day Moving Average

Spread Trading 21 Jan 11

Today's update see » Financial Markets.

Spread Trading 21 Jan 2011

Yesterday saw a bit of a blood bath in European equity markets but this morning looks like bulls are searching for some bargains following the big sell off.

There have been a few technical signals suggesting a sell off was imminent with the bearish engulfing daily candlestick that formed on Wednesday and the inability to hold onto 6000.

Yesterday’s follow through was also an ominous sign that there could be further weakness so this morning’s bounce might fall in the “dead cat” category.

Nevertheless, even though things look weak from a technical point of view, the sell off did seem quite excessive when you consider the data that came out of the US. Initial jobless claims and existing home sales both surprised to the upside.

The FTSE 100 plummeted below its 20 day moving average and, generally, when we’ve seen that in the past few months it was followed by more selling. This morning the 50 day moving average is providing the support and we’re seeing gains across the board.

The London market also suffered more than most other indices nearly recording a 2% fall after miners got absolutely walloped, whereas the Dax spread betting market barely battered an eyelid with less than a 1% decline.

The German market has been very resilient recently and shows few signs of suffering a similar fate to the FTSE as for now it’s happily above its 20 and 50 day moving average.

UK retails sales data at 9.30 this morning is the highlight of today’s trading session, but before then the German Ifo business climate is released at 9.00.

After ending 2010 at a record high the Ifo is expected to dip with a spike in inflation being the culprit. The UK retail sales are also expected to decline by some -0.3% month on month (ex-autos) following a mixed December that experienced terrible weather conditions.

We saw a number of retailers announce that they were adversely affected by the onset of winter, but internet sales have been very robust. There also seems to have been a “get it before VAT goes up” mentality that will have got consumers opening their wallets before the end of the year.

Apart from these two figures there’s nothing from the US, so trading might be a little flat as we go into the week end.

In the chaos of the selling in the shares spread betting markets the Dollar recouped some of its recent losses, in particular against Sterling. I have to mention that in yesterday’s comment we identified Cable as looking a little over bought and there was quite a big move to the downside.

$1.6000 truly is a major resistance level at the moment and this morning we’re at $1.5940. The retail sales data might provide a little excitement in the Sterling rates so keep an eye out at 9.30.

EUR/USD hovered around the $1.3450 level touching $1.3500 before retracing to $1.3400 and ending the day slap bang in the middle. This morning we’re at $1.3530 and levels to watch to the upside are $1.3570 and $1.3600 while to the downside $1.3420 and then $1.3360.

The gold spread trading market saw a dramatic move to the downside yesterday along with the London market as all metals saw some hefty profit taking. The break below $1352 has taken us to $1347 and we’re hovering in positive territory this morning.

The important levels to watch to the downside now are $1340 and $1330, prices not seen for two months. Over the longer term though $1300 is a major upward trend line support and is also where the 200 day moving average sits, so we’ve got a way to fall before we can call the overall trend into question.

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'Spread Trading 21 Jan 11' edited by SD, updated 21-Jan-11

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