Markets continue to squeeze higher even as the general economic situation deteriorates.
There is nothing perverse about this as top, well managed and sector dominant companies (which are obviously prevalent in the FTSE 350) are naturally the most likely survivors in any major downturn. The returns available on your investment (as opposed to cash in the bank) are a great attraction so long as any capital depreciation is not too dramatic.
It is interesting to watch the gyrations of the various markets as market perceptions change day by day and yesterday was a classic of its kind. The FTSE 100 traded in a 90 point range through the session but this disguises the fact that there were fully seven 50 point reversals during the day (enough for any budding trader to get his/her teeth into) only for the index to close just a few points away from the previous day.
This has become a general theme of the last month or so with many markets trading and re-trading the same ranges over the hours, days, weeks. Punters committing enough margin to individual positions (i.e. not over leveraging) are finding that losses need never be taken as the markets are currently being very kind and eventually coming back to the entry price. This is NOT a recommendation.
The FTSE 100 is currently up about 50 points at 4250 but seems to be struggling at this level to break higher into the 4300’s. The index has oscillated around between 4000 and 4400 (with the odd attempted break out) for four months now and it would be a brave man who predicted that this state of affairs is likely to change now.
My year end 2009 target, extracted from me at the end of Dec, was for 4400. Just at the moment this seems quite comfortable. Of course I will deny I ever said this later in the year.
Gold is slipping in early action as the steadiness in other markets starts to filter through into whether there is any necessity of holding such an expensive asset but it must always be admitted that the Yellow Metal always has its adherents who will buy no matter what.
Citigroup have advised that they expect the gold price to hit $2000 over the next few years and while I disagree it definitely makes for a decent target level.
Punters remain very much in two minds at all times with positions in virtually every market switching from long to short at a moments notice. With very little in the way of discernable trends this is definitely the correct trading strategy to adopt at this time.
Even currencies are now difficult to get in on a solid direction as the pound has made a bit of a recovery confounding the absolute bears for a few days at least. The high in Cable at $1.4330 this morning was actually quite an important short term resistance level and the immediate sell off having hit the point is rather disappointing. There was obviously not even a small level of power in the move to challenge to the up side.
As mentioned yesterday, the Sterling rally from the lows were probably due more to weak shorts (trying to get in on the down trend late in the day) being squeezed out rather than any definite reversal. The failure at the first attempt for a move higher is disappointing.
The GBP / USD spread is now at $1.4281-$1.4283 and will probably remain within touching distance of here for the rest of the session until this evening when the FOMC vote on US rates and the Senate vote on President Obama’s stimulus package.
The first vote is probably academic. With interest rates already at 0.25% it is difficult to see what more can be done. The second vote is more problematic. Many in the Senate do not agree with the entire programme but will probably be forced into a yes vote by the sheer momentum of President Obama’s popularity. It is difficult to estimate its effect on the economy as it will probably give a near term stimulus (obviously) but the longer term benefits are less certain.
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'Spread Trading 28 Jan 09' edited by SD, updated 28-Jan-09
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