Daily Financial Analysis / Simon Denham / 12 March 2009 / Leave a comment

Daily Comment Thursday 12th March

A little profit taking is creeping in this morning with the FTSE expected to drift a little lower on the open and not being able to hold onto the 3700. The test will be whether the market can maintain Tuesday's rally and push on higher and if we can break through the near term resistance levels of 3765 and then 3850. If that can be achieved then we'll most likely be seeing a bear market bounce and the next test for indices will be if they can push on from merely a bear market bounce and confirm that the recent lows are the bottom of the market. Bear market bounces typically last around 30 days, so this'll take us to around 22nd April and if the markets have continued their rally from these lows, the test will be if indices can carry on higher into May.

Before Tuesday's big rally the news was so dire and walking around the City I've never seen so many heads drooping and long faces. Everything is looking SO grim that the last few days have almost done the complete opposite to an over bought market in a bull run. At the highs you often hear calls for new highs and records, only for the bubble to burst and in this scenario we are seeing the opposite. Things have become so negative and that's usually when the market turns i.e. at its extremes.

Despite the fall expected in the FTSE on the open this morning the news flow is a little mixed with supermarket Morrison posting some good figures. The supermarkets that are considered to be rather more budget than the likes of Tesco and Waitrose are gaining market share on the UK's retail giant. This could be a long term trend for the supermarkets with consumers looking for the best deals and when the consumer bounces back (!) it could be difficult for Tesco to win back these customers.

Japan's quarterly GDP overnight did post its expected fall but a decline that was less than expected, only -3.2% as opposed to the consensus 3.3%. Unfortunately, the annual GDP was dire coming in at a whopping -12.1% so as a result Asian markets suffered loses and the Topix even recorded a 25 year low. For the remainder of the day economic news trickles out in the form of European PPI data at 10am, German Industrial Production at 11am and then the main focus of the day, US retail sales at 12.30 where surprise, surprise a fall is expected.

Sterling suffered again against the euro as a major trend line is believed to have been broken by the euro to the upside and many are expecting the next major level to be tested round the 0.9355 level and if that's cleared we could soon be testing 0.9500. By that stage the bulls will probably be firmly back in control and this'll most likely attract the herd to try and push the pair up to test the parity mark. Fundamentally the UK government isn't helping sterling by turning on the printing machines and commencing their quantitative easing. All of it is sterling negative which at the moment in over shadowing the structural difficulties that the euro is similarly facing. Euro/sterling is at 92.34 this morning. Against the dollar sterling staged a small recovery but more through dollar weakness than anything else. 1.3900 remains the near term resistance and at the time of writing this level's still in place as we're at 1.3800.

The dollar was punished yesterday as a result of Tuesday's big rally in equity markets. As long as the rhetoric of the banking crisis coming to an end continues, this will most likely lead more dollar weakness, probably into the euro which tested resistance at 1.2825. The euro's strength yesterday was even despite shocking factory order data out from Germany which posted an 8% decline, way more than expected. However, this morning the dollar is clawing back many of its losses with euro/dollar trading at 1.2750.

Gold bounced off its one month low around $890 which also happens to be a major trend line support. If government bailouts and quantitative easing persist then future inflationary fears could well serve to attract more buyers to the yellow metal. But if the equity rally continues then gold might suffer and a close below $890 could be a technical indication that $1000 will not be tested again any time soon.