As long as the FTSE 100 holds above critical support at 4517 we remain in a third wave advance heading towards the first target zone of 5500.

The price action from Friday’s disappointing US consumer sentiment data was not too surprising and the pullback was, arguably, more a result of overbought momentum indicators providing an excuse for some profit taking. The University of Michigan data should be placed in context. The fall was a surprise as earlier in the week the TIPP survey pointed towards another rebound but overall this set of data does not threaten the recovery story. Other releases on the day, such as, industrial production proved to be better then expected suggesting that the US is still on track to come out of recession.

Of more interest was this morning reaction to the news that Japan Q2 GDP expanded with the Japanese economy now out of recession, joining the likes of Germany and France from last week. The fall in the Nikkei and other Asian indices to this news has provided the clearest indication yet that the recent rally in equity markets already reflects the recovery scenario. We are now at a point where we must see further positive news to propel the markets higher. Of note, will be any signs that the recovery is sustainable, without the support of stimulus packages. Thus, a minor pullback in equity prices could be underway, but as long as we hold onto supports for the FTSE 100, initially at 4675 and then more critically 4517 and for the S&P 500 956 then the third bullish wave remains in place.

One of the hurdles for investors to overcome this week is the lack of any key data releases. In the US, housing is a theme throughout the week starting with today’s NAHB housing market index. Tuesday sees the release of housing starts and permits whilst on Friday we have pending home sales. The market is expecting an improvement throughout the data indicating a further stabilisation in the housing market. In addition, the US releases NY Fed survey, Philly Fed survey and conference board leading indicators. The key speech of the week is on Wednesday, with Bernanke attending the Jackson Hole conference speaking on “Reflections on a Year of Crisis”. In Europe, flash PMI’s on Friday is the only data of note. Whilst in the UK, we have a busy schedule starting tomorrow with CPI and RPI data. Consumer price inflation is expected to fall further as spare capacity puts pressure on core prices. On Wednesday, the MPC minutes should indicate the decision to extend QE was a unanimous vote.

Wednesday also sees the release of CBI Industrial Trends survey. On Thursday, we witness whether retail sales have remained resilient despite the colder weather in July and we also get to see the likely further deterioration in public finances with PSNB release.

Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:

Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.