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. Note yesterday sell off was accompanied by light volume.

The attention remains focused on Asian bourses particularly given the 6% fall yesterday in China’s stock market. However, at this point there is nothing to indicate that the pullback in markets seen during the past few days is nothing more than a healthy technical correction after significant rallies. Placing the Chinese stock market falls in context; this correction comes after an 80%+ rally. The S&P 500 2.4% fall comes after a rally of over 45% from its March lows. Meanwhile, the falls, so far, have been met with low volume another indication that this is a normal technical correction. For the moment, the third wave remains in place as long as we continue to hold above key supports, 4517 in the FTSE 100 and 956 in the S&P 500 on the weekly close. Other indicators to monitor are the VIX index which remains below its critical 30 level and commodity currencies. Commodities have led the declines seen in the equity markets but so far the commodity currencies falls has been very well contained, suggesting at least in the currency markets view the recovery story has further to run.

This week, one of the potential stumbling blocks for the markets to rebound will be the lack of data feeding through both economically and from a corporate perspective. On the economic front the data released yesterday was broadly positive. Meanwhile, in Asia, where the earning season is still underway, Bloomberg reports that a third of the 503 companies in the MSCI Asia Pacific Index have reported results since early July that have beaten analysts’ profit estimates, while 18% have missed. Thus, so far, economic and corporate data remain consistent with the recovery theme.

Today, the calendar is again light. In Europe we have the Germany ZEW survey, UK CPI and RPI data and in the US housing starts and permits for July.

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.