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UK stock market commentary (January 08, 2013): Fifth trading day of the year sets a significant precedent

Even though 2013 is only in its infancy the close of play today for US markets is considered to be an important landmark and has historically more often than not determined how the rest of the year plays out for equity markets. Since 1950 there’s been around 85% of the years ending up in positive territory when the S&P 500 has been positive after the first five trading days. As we speak the S&P 500 is up 2.2%, the Dow 1.8% and the FTSE 100 2.5% so at the moment you could be pretty confident of a rally for equity markets in 2013 if history is to repeat itself.

Ever since the temporary deal, kicking the can down the road, avoidance of fiscal cliff – call it what you will – the indices have been in a very bullish mode and for many of those bulls, for good reason too. Recently, there’s been some decent economic data in particular from the US and China, Asian markets have also got off to a good start for the year and so far in the first few days of 2013 there’s been a breakdown between the risk asset correlations such as equities and the euro for example. This suggests equities in their own right seem to be looking attractive to investors which is another reason for the bulls to be chirpy.

This hasn’t stopped a little bit of profit taking from creeping in and yesterday the Dow seemed to go into a bit of a consolidation phase after last week’s gains with investors taking some profits off the table ahead of the corporate earnings season. Yesterday we saw a 50 points drop to 13,384 but nevertheless remained above the short term moving averages so despite clients remaining overall short of the major indices there’s little to suggest that the immediate uptrend is over yet.

So earlier we had been calling the FTSE 100 to open lower and it commenced the session down some 10 to 15 points however the buyers have crept back in already taking us back into the black at the 6070 level. Near term support and resistance for the index is seen at 6050, 6000 and 6105, 6160 respectively so the bounce off that 6050 is quite significant over the near term.

The shared currency posted another rise yesterday, recouping 40 pips to 1.3113 as investors were awaiting the European Central Bank meeting later this week. Last year’s expectations that Greece might leave the eurozone and that Spain or Italy could get in real trouble did not really materialise which gave participants fresh hopes of better days ahead. This morning EUR/USD is at 1.3122 and near term support and resistance are seen at 1.3065/30/00 and 1.3170/3215/55 respectively.

Gold closed at $1646.6 yesterday, down ten and a half bucks as worries remain over the longevity of the Federal Reserve's bond purchasing program. A weaker dollar was also a factor but policy makers are concerned about the side effects that stimulus measures in the form of the program may have in the world's largest economy. However stronger demand from Asia, and in particular Japan, where pension funds are looking to double their holdings in line with government inflation targets, is aiding the precious metal and support lies at the $1630 mark.

Investors remained fairly optimistic about the energy sector going into the US earning season and pushed the WTI crude prices another 18 cents up to $93.28 a barrel. The world’s second biggest economy, China, will release economic results this week and bar a big surprise on the downside should support demand for oil prices.