FTSE 100 - daily candle chart 8th October 2010

The ftse 100 index hovered nervously in early trading during the London session on Friday, as traders and investors waited nervously for the latest set of unemployment figures from the US, with the release of the monthly Non Farm Payroll data. Over the last two days, we have seen the financial markets in general, and the equity markets in particular, mark time ahead of this key number, having seen the release of the awful ADP employment figures on Wednesday, which generally provide an accurate guide to the more influential NFP data which follows two days later. Indeed, the ADP figures were close to the mark, with the Non Farm Payroll employment numbers coming in at -95,000 against a forecast of +1,000, and in fact worse than last months figure of -57,000, with the only bright spot being the slight fall in the headline unemployment rate from 9.7% back to last month’s 9.6%.

As such, these figures are likely to accelerate the FED policy of implementing further quantitative easing sooner rather than later, and we are therefore likely to see a continuation of the current paradox in the markets, with bonds, equities and commodities all surging higher. The irony of course for equity markets is that the risk on appetite from investors continues to hold firm in these turbulent and unpredictable times, with such a number under normal circumstances sending traders to seek a safe haven status such as gold or the US dollar. However, with gold prices soaring, and the US currency likely to be devalued further as a result, investors are staying with equities for the time being.

Dow Jones - daily index chart 8th October 2010

From a technical perspective, Friday’s trading session ended as a small hammer candle, with the low of the day testing support from the 9 day moving average, which offered an excellent platform of support for the index, with a consequent recovery and bounce higher once the NFP data had been released. As such, this is an excellent signal that the current bullish sentiment for the FTSE 100 remains firmly in place, and with the 40 day moving average now crossing above the 200 day moving average this is adding further to the bullish sentiment at present. The index closed marginally lower on the day at 5,657.61, down from a high of 5,663.74. Our short term target remains the high of 5,833.73 of mid April, followed by a move beyond 6,000 by the end of the year.

The Dow Jones daily chart shows a similar picture with Friday’s narrow spread up candle breaking above the key 11,000 range to close the US session at 11,06.48. Much like the FTSE 100 on Friday, the market reacted nervously to the NFP data, finally closing the session higher as the prospects of further quantitative easing  increased. As such the positive sentiment for equities remains firmly in place, with both the FTSE 100 and Dow Jones indices looking bullish and set to break higher again this week.