Technical Outlook
The FTSE 100 maintains its bullish posture and remains on track to reach our target, the November high of 6461.5. The short-term trend is bullish above yesterday’s low of 6350, however, I prefer working with Monday’s low of 6327 as the trend defining level, given my expectation that volatility will pick up following yesterday’s soft ISM report.
Traders that are not already long given the pullback to 6327 on Monday or yesterday’s breach of 6400 will probably wait to buy the FTSE 100 until we get a pullback to the 6368-6400 range. The upper end of this range is yesterday’s breakout level, whilst 6368 is the 61.8 percent Fibonacci level of the rally from Monday’s low to the current high. Please see chart below.
In our alternative and a scenario of lower likelihood, if Monday’s low of 6327 does not hold as a support, the FTSE 100 may reach the psychological level of 6300 and then aim for the November 24 low of 6220.
ADP Employment On Tap
Today’s most important macro driver should be the U.S. ADP Employment index followed by Janet Yellen’s speech to the Economic Club of Washington. The Fed releases their ‘Beige Book’ this evening.
We focus on the U.S. ADP and according to a Bloomberg News survey it is projected to rise to 190k from 182k. The actual outcome tends to be volatile and I am expecting equity markets to remain strong as long as the print is not significantly lower than 190k.
I also expect higher volatility in the coming days ahead as yesterday’s U.S. ISM declined to 48.6 from 50.1. This is the weakest level since June 2009 and highlights that the export and energy oriented manufacturing sector is in real trouble. This soft reading could be enough for the Fed to delay a rate hike.
On the other hand, the domestic economy is much better with construction spending rising in October to the highest level since December 2007. Also U.S. auto sales last month rose 1.4 percent to 1.32 million vehicles, which is not far away from the industry record for November in 2001. The business press reports that analysts are expecting 2015 sales to beat the record of number of vehicles sold, which was 17.35 million back in 2000.
