Morning Dew - 16 December 2013

Waiting for the Fed

JCI ended the week on a weaker footing as Fed jitters continued. Lack of new information set off more profit-taking as the market ponders what the FOMC decision will be.

Reiterating my view, while December move is possible, large scale-back is not expected. It is likely that the Fed will start with a small cut, probably just to show the central bank’s commitment to taper off the monetary stimulus.

No action is also on the table. The Fed may want to wait until more data coming in just to make sure that the tapering won’t be premature. Even if this happens, the market seems to be prepared with such decision.

Timid Inflation

US inflation numbers were timid at the production stage. The core Producer Price Index (PPI) was up 0.1% in November, slower than the prior month. Compared to the same period last year, the core PPI also slowed to 1.3% from 1.4%.

The headline PPI on the other hand, showed acceleration, albeit less than what the market consensus. Month-on-month, PPI was down 0.1% against 0.2% decline in prior month. Year-on-year, PPI jumped 0.7% against 0.3% seen in prior period.

Technically Speaking...

JCI crashed below the support at 4,200 and went straight to test the key support at 4,161 while barely made any efforts to claw its way up.

Prior support at 4,200 has now turned to resistance while the next key support will be the prior low at 4,161. If this support fails to hold next week, the index may falter even deeper to test the 2013 low at 3,837.

Friday’s dip has pulled the MACD back underwater and this does not bode well for the coming week. RSI and stochastics however, are still above their respective lows, meaning a potential divergence structure remains intact.

Week Ahead

JCI ended the week on a weaker footing as the index now stands at the edge of key support. No domestic data are expected to power up the JCI while from the global side, the market is getting ready to faceoff with the FOMC’s decision on December 18th. The coming week will put the market somewhat listless as the Fed’s meeting approaches. Losing the key support at 4,161 will risk a revisit of 3,837, the 2013 low.

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