So, the short sellers are now on the receiving end as the debacle over Volkswagen unwinds and whilst there will be no particular tears shed over their pain the fact remains that Porsche’s actions, by any standards applicable on other exchanges, might be seen to be manipulative.
The announcement that they have acquired the remaining stock via call option purchases is the most important piece of news as it is likely that the sellers of the options will have been banks and the violent moves in the stock price on Monday and Tuesday will have meant that they would have had no opportunity to ‘Delta’ hedge the positions. The ‘Free Float’ in the stock is under 10pc so the news that Porsche had actually managed to ‘buy’ some 32pc via call options will probably raise a few eyebrows.
The valuation of the company (probably temporarily) as the most expensive on the planet brings back memories of when Lloyds Bank, in the midst of the Japanese Banking crisis of the early nineties, briefly became the highest capitalised bank in the world.
The announcement this morning that the company might unwind some of the options this morning and the reduction of Volkswagen’s weighting in the Dax (it reached 25pc of the index yesterday!) will probably weigh on German markets this morning.
Markets today will be (unsurprisingly) on the up as we digest the huge rally in the US markets yesterday evening and the FTSE is likely to be some 200 points to the good on the open. Whilst rallies are generally considered to be ‘good’ the extreme volatility of the last few weeks shows no signs whatsoever of slowing down. In fact, the exact opposite. In this environment it remains sensible to continue to sit out the gyrations as, whilst the probability of success always remains around 50/50, the wild fluctuations mean that stop loss levels can be hit in the blink of an eye. If you must trade do so in tiny size.
While the FTSE is up 200 points the Dax is coming in around 70 points lower in reaction to the comments above as Volkswagen starts off some 33pc lower (at around €600) from the close of 890 last night.
Sterling has managed to recover to the 1.60 level after two attempts at 1.5270 (on Friday and Monday) failed to break the support. The huge moves in all the majors over the past months will have done nothing to help businesses plan for the future. Do you hedge your exposure now? Wait? Hope for better levels? The fact is that most companies work on quite small profit margins so daily shifts of 3-4pc in the cost of hedging agreed contracts will make for almost minute by minute renegotiation of prices. Over night the Cable rate hit the old support at around 1.6200 but failed to break through. This builds the potential for quite a nice trading range between 1.62 and 1.53 for the brave to try to play with. There is also a tempting rising hourly trend line support building up (currently at around 1.57) which will have the shorter term traders watching the screens.
Gold failed to close below the $700 support level mentioned on Friday (even though it traded as low as $682 during the session and has now bounced back to the 750 mark as the dollar has given up some of its recent strength and equity volatility goes through the roof. We do need to get some kind of stability here (as well as in other markets) before we can call the bottom of the current trend. Each jerk lower is recording lower ‘lows’ and lower ‘highs’ and until this sequence is broken valuations could remain under pressure with bear moves being faster and deeper than the bull corrections. Oil has now reached the 60 buck mark but there does appear to be some support at just below this price especially if the OPEC partners can actually implement the output cuts rather than just agree to them. Countries such as Venezuela, Russia amongst others are massively exposed to a falling oil price as their economies are geared to the higher revenue flows. Sustained periods below $60 might make for political upheaval with extreme shifts to the left or right possible.
All in all whilst the markets are truly frightening at the moment it cannot be denied that they are also extremely exciting at the same time.
Dave Evans is a market analyst for BetonMarkets, the financial fixed odds betting firm. We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.