The US reporting season is now almost over and the news has been unequivocally good from the corporate sector and still investors cannot bring themselves to quite believe it. Most analysts had been hoping for good numbers and they got them but the problem for many is that we were hearing about the past not the future.  Companies’ bottom lines and balance sheets have been heavily bolstered by the various massive stimulus packages available across the western world and by the fact that the emerging markets have continued to grow strongly all the while.  We are now putting our hand in the air to call the waiter for the bill and nobody is quite sure how much money all the diners have in their pockets.

The FTSE summed all this up and drifted lower all day (virtually from the opening bell) until closing at its lows for the session.  This morning we are once again on the front foot with buyers looking to come in at the low 5300’s but the extreme bullishness of only a few days ago seems to have somehow evaporated.  5290/5300 remains support and 5340/50 is now resistance (having been support yesterday!).  Our comment of yesterday that what bulls did not want to see was a slip back into the old ranges has come to pass and we will have to fight our way higher again.  Contra traders are once more having a field day as merely opposing any previous ‘major’ session move has proved profitable.

The US markets have similarly stalled but like the FTSE are still within striking distance of new levels.  10590/10600 for the Dow is now looking a very important point with our last two sessions failing at pretty much the same point at 10580.  Clients have been selling at anything above 10550 for quick profits but there is a very high risk of being on the wrong side if there was to be a break out.  Curiously the S&P is rather less positive and, at 1110, the index is some way from the June peak of 1133.  This is rather more worrying than the Dow’s progress as it is built on 500 major company numbers not just the 30 in the Dow which can be heavily swayed by one constituent.  The S&P and Dow seem unable to break away from the psychological levels of 1100 and 10500 respectively and we may find that through the summer these levels continue to exert a fascination.

On the currency markets the Euro continues to battle higher without seeming to make the critical move above 1.3000. We have now been hammering at 1.3035/50 since the middle of July sometimes pulling back down a bit but always returning to the level.  This morning we are up at 1.3030 as I write having already looked a couple of times at 1.3050 without success but the bulls will be hoping that it is just a matter of time.  Standing on the sidelines we can see from the data that the market is still (even after a 10 cent reversal) short of Euros and this is continuing to have an effect on direction.  It is not the Dollar bears who are continually under pressure as they were through the first half of 2010 now the boot is very much on the other foot.  Every move higher in the Euro puts more shorts under water and we have now almost entire reversed the break out Sovereign debt move which started around the beginning of May.

As mentioned the Euro has resistance at 1.30035/50 and above here at 1.3110/20. On the downside support is building at 1.2965/80 and below here at 1.2880/95.  Sterling is similarly bullish versus the dollar and is having its own battle above 1.5600. Clients are selling at all prices above this price and are building up heavy shorts.  An initial move this morning up to 1.5650 has probably proved worrying for these shorts but the attempted break higher ran out of steam in the same fashion as the Euro.  Short position taking is dangerous though as the momentum is definitely bullish at the moment and quick stops are probably recommended above 1.5660.

Gold had one of its quietest days for ages yesterday as traders worried about the possibility of a continuation of Tuesdays falls.  In the event neither a recovery nor a continuation was forthcoming and we ended the day pretty much unchanged.  The Gold bugs seem to be taking some comfort from this in today’s early action and we are back up at 1167 some 10 bucks above the recent lows.  The stability is welcome for the bulls but (as with the bounce last week) we are struggling to regain all the lost ground.  The support at 1154/58 which we mentioned yesterday remains important (and it held which was nice) and on the upside 1174/76 will probably serve as a target point for day trade bulls.

Oil remains bang in the middle of the current 74-80 range. Inventories were far stronger than expected yesterday which may cause some weakness in the front month contract as we approach delivery.  For the time being we continue to oscillate in the range and (frankly) it is difficult to see what is likely to cause a definite sea change.

The partnership agreement will see spread betting hit a truly global stage, with analysts anticipating a strong rise in uptake in the new financial markets.  With the WorldSpread online trading platform on offer to 188Bet’s global client base, the deal has paved the way for Asian investors to take advantage of spread betting on a range of worldwide indices.

The FTSE continues to bolster itself at the higher end of the trading range and the bulls can almost be seen sharpening their knives looking for another push to the upside.  Unfortunately for the early players yesterday the US rather rained on the parade in the afternoon in revealing weaker than expected consumer confidence numbers.  These were starkly at odds with corporate numbers which were once again on the top side of expectations.  The point being, of course, that the consumer confidence number is a ‘look forward’ piece of data and corporate results are … well… a tad historical.

As mentioned yesterday support in the FTSE is at 5340/50 and so long as we can remain above this point the bulls will probably be gaining in confidence.  What they do not want to see is for the markets to slip back into the old trading range of the last few months.  The US markets as mentioned have not really helped much as the resistance at 10590/10600 in the Dow was not even seriously tested in yesterday’s session and the FTSE is unlikely to get much further traction unless the US goes along for the ride as well.

A bit of common sense seemed to infiltrate the BP price yesterday as investors did indeed look beyond the spill horizon and did not like the view.  As mentioned in yesterday’s comment it will be a brave authority which gives BP deep water drilling permission and politicians are unlikely to put their neck on the line for an unpopular corporate.

On the other hand Banks have seemingly scooped the pool in being top of the class in the stress test exams.  Bank stock is now within touching distance of its post crisis highs and the UK ‘taxpayer’ (sic) is now in a profit on its intervention on a straight equity valuation.  When you add in the penal rates that the banks were being forced to pay for much of the liquidity provisions of one form or another the profits are now reaching ..ummm.. ‘obscene’ levels.  The stress tests are coming under some scrutiny but it is unlikely that anyone will want to rock the boat too much as a few years of possibly ‘false’ security are needed to reach a position of ‘real’ stability.

Currency markets are stuck at the highs with Cable pushing briefly above 1.5600 and the Euro continually probing above the 1.3000 mark.  Our clients are trying to oppose the moves higher and this is probably symptomatic of the moves higher with weak shorts continually being squeezed and driving prices higher therefore squeezing new shorts etc etc.  At some point the elastic band effect will run out and there will, possibly be a sharp correction but with no definite ‘spike’ higher, which normally signals the top of a move, in evidence the Euro and Pound seem happy to drift ever upwards versus the Dollar.

The big mover yesterday was Gold which broke through the massive support at 1175/78 mentioned yesterday. The reaction was pretty much immediate and the Yellow Metal slumped to 1157 at its lows.  The trend line break is quite important to technical traders as it might indicate an end to the last two years of acceleration rally.  The longer term uptrend support is miles lower than current levels and longs will be concerned if yesterday’s falls get further confirmation today.  Current prices are at 1162 and we are seeing increasing buying from all sides as our clients continue to go along with the bull story.  There is a support level at between 1154 and 1158 but buyers will be hoping that we return above the aforementioned 1175/78 in the very short term.  As mentioned earlier this week the repo rates are effectively negative with December Gold almost 2 bucks above spot prices which might indicate that there are a lot of longs out there.

Oil has suffered in line with the consumer confidence number and the 79/80 resistance has once again proved solid.  Longs will be hoping that the pull back is only temporary but the fear is out there that we are just going to repeat the last move higher which petered out at $79.50/80.00 and then fell back to the low 70’s.

The FTSE is now at 5380 as I write and bears are being squeezed in early action. As mentioned in comments past there was heavy resistance at 5340/50ish which had been the peak of the last two moves up and this may now prove to be resistance to any attempt to move back lower.  There has been the odd poor corporate announcement but in the main the numbers have been exceptionally good both in Europe and over the pond.  The Dow has rallied almost 500 points in just a week and it is tempting to say that the bulls have control.  Over and above everything is the undoubted fact that there is a huge amount of money looking for a home and not everyone wants to risk investing in the Middle/Far East.

BP have announced 17.1 bln loss (it sounds less if you say it quickly!) but this is pretty much in the numbers already and so the stock is unchanged on the day.  Unfortunately for investors once the immediate problem is out of the way the focus will then turn to ‘growth’.  The company is well used to dealing in the more unstable parts of the globe but has always backed this up with a strong presence in North America and the Middle East.  The future might have to be more focused on gaining income from the former which makes the revenue stream rather less certain so a return to the 600p level is probably not on the cards just yet.

The S&P and Dow are up at the highs for the month as July continues to turn June’s falls on their head. The highs of June were 1134 and 10600 respectively are still a small move higher away and they will no doubt exert something of a barrier to buyers.

On the currency front the Euro is back at 1.3000 this morning as the Dollar continues to take a bashing.  Goldman’s have come out on the Euro’s side and is now forecasting higher levels which has brought in buyers over the last session or so. 1.3000/20 is resistance which held us back through yesterday evening and all of this morning’s action over in Japan’s session but so far a breakout to the upside has proved elusive.  It is almost certain that an attempt will be made at some point to break into a new range and traders will be waiting to try to take advantage either by selling (in the hope of a failed move) or buying looking for continued progress higher.  Support is around 1.2950/55 and then down at 1.2845/65 but in the current sentiment this looks unlikely to be probed soon.

Sterling is likewise doing well against the Greenback but seems to be struggling at 1.55 with 1.5520/30 proving to be unassailable just for the time being.  Sterling/Euro had managed to get north of 1.2000 in yesterday’s session but while the Euro continued to move higher the Pound rather ground to a halt and has now slumped back to 1.1890.  Dealers are unlikely to get too excited at these levels as current prices can be seen to be pretty much the median level of recent times.

Gold retraced back (almost exactly) to the major support level (once again) in yesterday’s session and has bounced marginally from this point.  The current price of 1186 will be giving bulls hopes of a buying level as the support is holding but will also not be dismaying the bears too much either as the bounce from such a major level has not been exactly sparkling.  1175/78 remains crucial and should be watched by traders as any breach may be taken very poorly.  Whilst we remain above here, though, buyers will continue to pick up positions.

A lovely saying is that “the road to hell is paved with good intentions” and at the moment (from regulatory pressures, Basle II and III, and pressure from very short sighted politicians) Banks risk being squeezed down this route.

Markets on the up this morning with the FTSE called some 20 points to the good and investors certainly happy to go along for the ride for the time being.  Fears over ‘double-dips’, inflation, deflation.. small green furry creatures from Alpha Centuri … seem to be on the back burner for the moment.  This said we really need to close above 5340/45 as this has been the peak for the last two moves higher and 5360/75 has been something of a support/resistance point since November last year.  Pressure will presumably remain to keep markets in the recent trading ranges especially as we are still in the low volume summer period.

BP looks set to replace Tony Hayward probably with Bob Dudley as the board decides that a new broom might curry favour with the US administration.  In hindsight (aside from his initial comment that the spill would be minor, presumably due to erroneous information provided to him) it is difficult to see what more Hayward could have actually done and his replacement now does leave something of a sour taste in the mouth.  That said the markets will soon forget, as they always do, and now that the leak appears to have been plugged we will almost be able to draw a line under the whole story.  In a few years time even the Oil will be a fading memory.  So what is the value of the company with such a legacy?  The major problem for investors is that BP will be the beggar at the window for any drilling/supply contracts worldwide as no democratic government is likely to strike a deal with them just in case something goes wrong.  As with many decisions made these days these will prove to be short sighted, as the removal of one major player will make ‘block’ bidding lower and contract costs higher, which makes BP’s competitors stronger and the company itself possibly holed below the waterline.

On the currency front the pound has made it back up to the 1.55 level this morning (but no higher). Back in April we reached this level as well before the run in to the election exerted its bearish influence. Our clients seem to be expecting a repeat of this price action and have been selling in early trading.  This is a very understandable action and does not look to be (currently) an unreasonable proposition.  Above 1.5500 the next point is quite close at 1.5530/35 which gives a reasonable stop level for new bears to focus on. Above this point though we might be looking at a much higher level.  So, something for both the bulls and bears to be looking at on the off.

The Euro is pretty much unchanged over the weekend at 1.2920 and, here too, we are close to a solid resistance level in this case at 1.3000.  Dealers tried to short the currency through Friday but were caught out by the afternoon/evening rally.  The Bank stress tests seem to be a medley of ‘white’ and ‘wash’ as banks were permitted to omit ‘investment’ sovereign debt from the mix.  Of course what we consider to be in an ‘investment book’ and a ‘trading book’ can be a moot point.  I once got into a spot of bother when I defined an ‘investment’ as a ‘trade’ that had gone wrong.

Commodities continue to oscillate over the same old ground with Gold seemingly stuck between 1185 and 1205 as the bull and bear argument waxes and wanes.  Dealers are unlikely to take too much on just at the moment but the weekly charts seem to be indicating that the long term bull trend line has held over the last fortnight and bears must be cautious of a sharp reaction higher.  This said we are still close to the support level and clients must beware a failure move to the downside.  Longs are now getting ‘negative’ monies on Repo for the Spot price, i.e. spot gold is currently higher than the Futures price (normally it is lower to compensate for having to pay out now on spot rather than agreeing to pay in the Future), which is normally an indication that there are a lot of ‘weak’ longs out there.  If the price drops below 1175/78 we may get a large number of forced liquidations. Dealers will be watching for a break above 1205 and 1212/14 on the up side and the aforementioned 1175 on the down.  In the meantime we are in a range trade situation.

Oil held underneath 80 bucks again but there is little in the way of selling reaction just yet.  As with virtually all asset markets we continue to be in a bull phase and it is difficult to expect weaker prices with the UK, US and Euro busily stimulating on the quiet.