(MENAFN- ProactiveInvestors - UK) A glance at the above chart of the FTSE 100 illustrates that it has been a poor week for equities after a fresh batch of disappointing economic news and continued political uncertainty in Europe weigh on investor sentiment.
The German Ifo institute's monthly business sentiment index fell for a fifth successive month in September to its lowest level since early 2012, fuelling concerns that the debt crisis was spreading to Europe's core economy. Both the current and expectations component of the index declined, indicating the Eurozone's powerhouse economy could be heading towards a contraction in the third quarter of the year.
Citing weakness in the world economy, Caterpillar Inc, the world's largest earth-moving equipment maker, cut its earnings forecasts, casting a shadow of doubt over the impending US earnings reporting season. Negative comments on QE3 from the Chairman of the Philadelphia Fed helped unsettle investors.
Broader problems in Europe reminded the market of the problems facing the region, with widely broadcast riots in Greece and Spain stealing the headlines. Of particular concern is the question of "when", or "if" Spain would formally request a sovereign bailout â€" a move that would subsequently allow the ECB to implement bond buying plans.
Spain announced an austerity budget on Thursday, unveiling €40 billion of spending cuts for the next year, as Madrid continues to talk with European authorities about the terms of a possible aid package.
Some analysts, however, believe Spain may want to keep its fiscal independence and attempt to mend the economy internally for political reasons. The uncertainty sent the Euro to a two week low against the dollar and the Spanish ten-year yield back above 6% for the first time since the ECB announced its bond buying program earlier this month.
Despite renewed fears in Europe and a period of profit taking, little has fundamentally changed since the ECB and US announced further monetary stimulus to boost global growth. Consolidation is healthy and vital to maintaining longer term growth on the market, with recent central bank measures designed to facilitate the recovery.
US consumer confidence jumped to a seven month high of 70.3 in September from 61.3 the previous month, bolstered by a brighter outlook for overall business conditions and hiring. The expectations component was higher, indicating consumers were more optimistic about jobs and the housing market. Jobless claims also revealed fewer Americans than forecast filed claims for unemployment payments last week, a sign the labour market is improving.
US second quarter GDP, however, was revised down to 1.3% from 1.7%, while durable goods orders tumbled 13.2% in August, the largest drop since January 2009, when the economy was in the throes of recession, fuelling expectations of further stimulus from the Federal Reserve.
Technical analysis of the FTSE 100 displays the recent retracement from the upper band of the medium-term upward channel towards the lower support line at 5735, which has supported the index since May. Additional support is likely from the rising 50-day moving average at 5765 and the historically significant level at 5705, although a break below this level would negate the bullish trend.
In summary, strong headwinds undoubtedly remain, but the trend remains higher and central banks are proactively attempting to facilitate a recovery. Having waited for a retracement towards the medium term trend line, following the QE fuelled rally a fortnight ago, I regard the recent weakness as a good buying opportunity.
Despite weakness in equities, oil prices have remained relatively robust. After rallying from $89 a barrel in June, Brent crude hit $116.5 a barrel a fortnight ago when additional central bank stimulus was announced, before only drifting back to $111.5.
An oil related company I have been monitoring is Ithaca Energy (Epic: IAE), a North Sea oil and gas exploration, development and production company. Interim results on 13th August revealed a sharp improvement in half-year earnings. Production commenced at the highly anticipated Athena field in May 2012, boosting daily net production by 49% to 4132 barrels of oil equivalent.
The increase in production fed through into profits and cash flow, with operating profits gaining 68% on 2011 to $17.8 million in the half year to 30th June. Analysts suggest this figure could have been even better if it wasn't for an overall reduction in gas sales.
Cash flow from operating activities also increased by $21.8 million to $55.0 million, with net cash rising to $132.1 million from $112 million a year earlier. Management also signed an agreement with BNP Paribas for a $400 million fully underwritten debt facility, replacing the previous undrawn $140 million debt facility.
Ithaca (LON:IAE) even managed to largely offset a 6% decrease in realised oil prices during the second quarter with a $2.8 bbl hedging gain. Further hedging strategies have been put in place to help underpin revenues in the 2012-13 period.
Earnings per share are growing rapidly and more recent developments at many of its early stage assets, including recent progress at its Hurricane appraisal well in the North sea, have prompted analysts to scale-up forecasts. Analysts expect full-year EPS of 22 cents, doubling to 45 cents in 2013, putting the company on a lowly rating of only 4.25x 2013 earnings estimates and making it a perennial take-over target for many of the larger oil companies.
The above chart of Ithaca shows the share price weakness from earlier this year, as take-over talk failed to materialise. The price is now back on historical support from levels seen this time last year, despite the company making significant headway during this period, with the oversold oscillators suggesting the recent weakness may be exhausted.
The company demonstrates strong profit growth, improving cash flow and a proven track record for fast tracking early stage oil and gas fields. I believe the shares are good value and the possibility of a potential bid is an added bonus. At the time of writing the share price is 118p and near term targets are seen at 126.25p, 137.5p and 148p, with a stop-loss below support at 110.75p
This report was written by Mark Allen â€" Head of Derivatives at Simple Investments Stockbrokers. The writer does not hold a position in Ithaca Energy, but client accounts may. The material in this report has come from Simply Charts and Ithaca Energy's corporate website.
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