Iran Deal
DJIA pushed slightly higher as Iran deal to curb its nuclear activities buoyed the markets. In return, Iran will get some easing for its sanctions on oil, auto parts, gold and precious metals.
Iran’s deal is also seen good for putting pressure on oil prices as Mid-East tensions will be less worrisome than usual.
With December closing in, there’s a good chance that the upside push is about to continue, given that December is usually a good month for stocks. Hence, a good potential for the Dow translates to a good potential for JCI as well. Even if the JCI lost its correlation with the Dow, positive investors’ mood from abroad could at least limit the downside for JCI.
S&P Valuation
Pending home sales fell 0.6% in October, the fifth in a row as borrowing costs went higher. The reading was far from what had been expected as consensus was at 1% gain month-on-month.
S&P valuation is now at its top level since May 2010. While current PE stands at around 17x, the ratio itself was at 17.5x back in October 2007 and even 31x in March 2000.
Technically Speaking...
JCI kick-started the week with a whimper as JCI gyrated within a thin range of 4,346 and 4,316.
Support is seen at 4,284, for when this support line is broken, the way lower will be re-opened and we will risk another fall towards 4,133 en route to 3,837.
The fall on Friday was accompanied by a jump in volume, not a good sign for the bulls. However, the RSI has started to curl up, forming a potential failure swing, which could spell rebound.
Overall, worsening technical outlook exposes the index to more weakness throughout the coming week.
Day Ahead
Iran deal will add more positive weight on JCI as such deal could mean cheaper oil prices ahead – hence helping put a cap on the inflationary risk which in turn will hold back Bank Indonesia from pulling the rate trigger again anytime soon. Still, with the Fed’s meeting looms large, a risk of a tapering will keep rallies in check.
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