News › 3rd July – Bear market in full swing as Footsie approached major support

3rd July – Bear market in full swing as Footsie approached major support

27th June – Big falls around the world spill over into London We saw almost a perfect storm of bad news yesterday for investors which caused big falls around the world’s markets. This has continued today, with the FTSE 100 index down 30 points mid-morning as banks continue to be sold off, oil prices having hit new highs at $142 a barrel and more downbeat economic news both in the US and over here. Oil stocks naturally dominate the risers with Cairn Energy up 5%, with Tullow and BG Group also strong. Miners have also resisted the falls elsewhere after a big rise in metals overnight.

After its sharp reversal yesterday, London Stock Exchange is down another 5% with traders said to be deeply unimpressed by its "deep pool" exchange tie-up with Lehman Bros. There were also reports that rival deep pool project Turquoise was set to launch in mid-July, and with these concerns the shares could certainly fall much further from here.

In the supermarket sector, there are signs of more distress, as Tesco is about to start a more severe price war according to press reports. It will reduce the price of 3,000 items by up to 50% from Monday. Rival Asda has hit back by promising to sell ten staple items, including bread, eggs and butter, for only 50p from today. We wonder how all this is likely to affect margins and retain our short position in Tesco, which is going very well so far.

30th June – Early bargain hunting again hits a wall in London

After the barrage of negative press comment over the weekend, there were signs of some early value hunting in London, but once again sellers appeared into any strength. By mid-morning, the FTSE 100 index was up fifteen points, and the miners were generally the main winners on healthy commodity prices and M&A talk. There was a story that Lakshmi Mittal was looking to take a stake in Rio Tinto to protect his future iron ore prices, and the latter’s shares were up almost 2%, but elsewhere the focus was again on beaten down stocks.

Shares in Taylor Wimpey initially rose then edged back as it announced write-offs of £660m and confirmed it was talking to shareholders over a placing and open offer. Other builders are down in sympathy and the very cautious comments suggest we will in die course see some insolvencies in the sector.

Trinity Mirror dropped by more than a quarter after it warned that full-year operating profits would be 10% lower than forecasts as advertising market conditions continue to deteriorate. This is another highly cyclical sector, and spells further worries for other media stocks, to which we remain bearish.

There was a little good news on the takeover front, as Cable & Wireless confirmed it had raised its offer for Thus with a cash offer of 180p per share, and this might do the trick with the latter’s shares settling 20% up at 174p.

1st July – Footsie reverses after yesterday’s big rise

There was a glimmer of hope for the bulls yesterday as the FTSE 100 index powered to almost a triple digit gain, but the bears are back in control today. Mid-morning the index is down 67 points after another raft of downbeat news on the UK housing market, which is seeing the biggest falls for sixteen years. Barratt Developments has been hitting new lows regularly but there was an early mark up on press reports that it was close to securing a rescue refinancing with lenders that would relax its banking covenants and help it ride out the property downturn. Having seen a 12% rise earlier on, it has given some of these back to stand up 7.3%, and we remain cautious as before.

BP continues to suffer from its problems in Russia, with the shares down again today despite the rise in the price of crude after authorities in Moscow refused half of the work permits requested by TNK-BP. British Airways and Carnival are again down with oil prices still at record highs.

In the retailing sector, there were a couple of bright sparks with HMV saying it was ahead of schedule in its recovery programme after a strong set of full-year results. Profit before tax and exceptional items from continuing operations grew 25.2% to £56.6m in the year to 26 April 2008 from £45.2m the year before, and total sales growth from continuing operations was 11.3%, with like-for-like sales up 7.3%. These are impressive figures, but much has already been factored into a resilient share price, which is down 7% so far, which looks a bit harsh. N Brown also increased revenues by 12.3% in the 17 weeks to 28th June 2008, a slight rise from the rate up until April. Sales were particularly strong during the sunny spell in May, which coincided with the mailing of summer catalogues. After a big mark up here, the shares also drifted back but look just about the best of a bad bunch in clothing retailing.

2nd July – Carnage in the housebuilders and retailers on more bad news

There was major volatility today as defensive stocks pushed the FTSE 100 index higher but a raft of bad news sent retailers and builders down again. Astra Zeneca led the way after it won a patent battle over its schizophrenia treatment Seroquel. The shares were up 6% mid-morning and sector peer Glaxo SmithKline was also strong. Vedanta also led a recovery in the mining sector following its sharp falls yesterday.

The big news though was at Marks & Spencer, where the shares dropped around 20% after it said Q1 UK like-for-like sales fell 5.3% as it experienced deteriorating consumer confidence levels and more challenging market conditions. In addition, Steven Esom, director of food, is to step down from the board and will be leaving with immediate effect. It looks pretty bleak in the short term here, as it continues to do so for much of the sector.

Over in the housebuilders, Taylor Wimpey collapsed to 32p on news that it had failed to secure a deal with existing and potential investors to raise further equity capital. It had been expected to announce an injection of £500m, and will have to evaluate other options to secure value for shareholders. Here, it announced the departure of FD Peter Johnson and said that there would be no interim dividend. We have been bearish on the sector and it is clear that one or more of these stocks might soon be effectively bust, so buyers should avoid the temptation to dip in here.

3rd July - More falls for Footsie as the bad news keeps coming in

The FTSE 100 index responded to another drop on wall Street with an early fall today, and this time it was the miners as well as the beaten down stocks that led the way down. Lonmin, Ferrexpro, Xstrata and Kazakhmys were all fallers, as was BHP Billiton despite it receiving partial US anti-trust clearance to go ahead with its bid for rival miner Rio Tinto.

On the upside, recent favourite of ours AMEC rose over 4% after it said it continued to make excellent progress as it raised its margin expectation to 6.5% for 2008. you cannot ignore stocks making new highs, and this still looks very strong.

One stock that has been very weak recently is WPP, and the shares drifted again today after its revised £1.078bn bid proposal for Taylor Nelson was rejected. The terms of the offer were 173p in cash and 0.1889 of a WPP share for each Taylor Nelson share, but the latter believes it again substantially undervalues the group, so we might have hot stalemate for now..

In the retail sector, there was a little brighter news as Game said it was performing slightly ahead of its expectations for H1 as the PC and video games market continued to grow strongly. It looks forward to H2 and, although the quality of release schedule is unprecedented, it remained confident about the key Christmas trading season, which is more than you can say for the rest of the sector, but this was not good enough for the market and the shares are down 5%, which looks harsh.

Mike Estrey
Research done by Blue Index, the CFD, Online and Forex Trading Experts

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3rd July – Bear market in full swing as Footsie approached major support