Spread Trading 4 Nov 09
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Spread Trading 4 Nov 09
Well we got the 100 point fall yesterday but that was our lot as the markets then decided, as on the previous four sessions, that, actually we want to move back up again.
The phrase “whore’s draws” is starting to look apposite to describe the recent activity … up, down, up, down, up again.
In all this rushing about has not been restricted to the equity markets either with both Oil and Gold bouncing from early weakness, the Dollar also got in on the act first rallying strongly and then ending up pretty much unchanged.
To top it all there were a few strange antics going on in early action with the equity market seeing some odd programme executions in the first few minutes, forcing individual stock prices down sharply, and then a big ‘fat finger’ error in the US Dollar Index future to give us all a heart attack.
The data out yesterday was once again a bit of a mixed bag with the big ‘good news’ being the huge surge in US car sales. The problem with this is the lack of clarity over the ‘cash for clunkers’ programme and how this is impacting the figures.
It appears to have been enough for GM to pull out of its sale of Opel/Vauxhall in Europe. Unfortunately, even in the good times, there was not enough room for three major manufacturers in the US, or the three or four in Germany and France etc etc.
We all know that there will have to be contraction in motor production capacity, over and above the chapter 11 shut downs in the US, but, as with last year, we are still in the situation of everyone clinging on waiting for one of the others to blink.
This morning sees the FTSE called back up at 5070 and, with pre market action being very quiet indeed, we might, for the first time in a week or so, be looking at a more peaceful morning/early afternoon. All eyes will be on the FOMC deliberations due at 19.15 this evening. Rates are very unlikely to be changed but there is a possibility that the wording might be more hawkish.
Some of the Fed members have been expressing unease at the continued very loose fiscal stance of the US administration and, while Ben Bernanke remains in the dove camp and will probably carry the day, we might be closer to talk of raising rates that many believe.
Yesterday’s comment indicating support at 4985 should have been a good level for buyers to use up some of their powder with the low at 4983.
If we want to make an early case for a ‘head and shoulders formation’ proponents will be looking at a move back up to close to 5200 over the next few weeks but with no power to break above this mark. If this happens, a big ‘IF’ to be sure, the chartists will be getting ever more bearish.
The markets look to be capped at around 5200/5300 for the moment but supported below 5000 as well. Traders might take fright once again if data continues to indicate a more restrained bounce from the downturn but we are now in the run in to the end of the year and, after regaining all the losses of the first three months and more, there is likely to be a trend from the investment funds to avoid dramatic allocations. It would not surprise me in the least if we ended the year within touching distance of 5100.
As with the FTSE, the Dow Jones is looking to have solid support as well with the 9680 level proving to be the lows on each of the last three sessions. 9830 is also a resistance level and with the market quoted at 9805 this morning we will be watching for any break out (or not as the case may be) to indicate that the bull move can continue.
Each of the pull backs over the last four months have been swiftly reversed and investors will be hoping that the same happens this time. 10100 looks to be a move too far for the time being, as with 5300 in the FTSE, but we will really want to see some further strength soon otherwise the fragile confidence built up over the last eight months might fail in the cold of winter.
Oil has returned to the 80 Dollar level and as mentioned a few times recently this price does seem to have something of a gravitational pull about it at the moment. The rally seems to be petering out though, just shy of the previous high, $80.40, from the bounce after the last sell off.
Oil inventories are due out at 15.30 this afternoon which might give us another boost but it is obviously a very difficult number to call, as is the reaction to it. Last week a weak inventory number led to a sell off which was the opposite reaction to that which might have been expected. Better to flatten positions out and take a view in the aftermath.
Gold, as predicted in our comment yesterday, finally made a bid for new highs as bears were squeezed all the way up. This morning there is no real reaction selling either and we are now at all time highs again of $1089.0. The trend higher is still very much in place and with everyone wondering which currency should be the weakest, rather than the strongest, gold remains a haven for frightened money.
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'Spread Trading 4 Nov 09' edited by SD, updated 04-Nov-09
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