A classic short term squeeze developed throughout yesterday’s session as the early weakness in the FTSE failed early on and buyers just continued to pick up stock through the day. As mentioned the support at 4300 remained a popular area to pick up positions and anyone attempting to short was just pushed and pushed and pushed until the pips squeaked.

This morning has seen a fifty point trading range already as spread betting companies called the early, pre market, prices completely wrong. Our high (at around 7.30 this morning) was bang on 4500 but the immediate opening levels at 08.00 saw some initial profit taking in the open market taking the index to almost 4450 in the first few minutes.

There is some feeling that we may be stuck below the recent highs of 4520 for the foreseeable future until some better indication of the state of play is found. We all hope that the end of ’09 will be the point of inflexion for growth but this is just (at the moment) some optimistic reading of the tealeaves and, anyway, we still have quite a bit of the current year to go!

Clients are selling the rally in the FTSE this morning quite heavily in expectation of a return to the middle of the current range at around 4400 and it is difficult to argue with this as being the most likely outcome. The only point of fear at this moment is the apparent unanimity of opinion. In general if too many people believe in a market direction … they are wrong.

Simply because the weight of money betting in one direction tilts the market in the other!
(One of the major points in favour of a rally is that the ‘mother of all parliaments’ is currently tearing itself apart over other matters instead of putting it’s ignorant and ill informed foot into trying to run the economy. One of the great things about John Major was his ability to do that one thing which politicians find very, very difficult… nothing. Unfortunately the current crop seem to be under the illusion that complete ignorance and inexperience of anything whatsoever to do with business is not in any way a handicap when formulating policy. With any luck the ‘honourable’ members will be embarrassed into inactivity over the critical economic period of the next six to twelve months.)

Currency markets are in something of a flux at the moment with the pound making a bid for the hills. This morning has seen the Cable cross finally break above 1.5390 and we are now at the highs of the year at 1.5475. While it has been easy to denigrate the pound over the past twelve months the fact is that the UK is not in a uniquely weak position. Many other G7 nations have (if not equally as bad) some pretty dire economic platforms from which they hope to recover. After Sterling fell some 30 to 50pc (depending against which currency you compare) last year the momentum to the downside was lost in the first quarter of ’09. This has opened up more analysis on competitor currencies and as mentioned none of these is exactly paragons of shining light.

Chart wise…if the pound can remain at these levels for a few days a build a solid platform to progress there is a lot of fresh air above us. The pound fell so quickly that no massive support or resistance levels have been created to restrict a sharp move to the up side. On the other hand there is a massive amount of volume resistance between 1.37 and 1.53 versus the dollar and below 1.10 versus the Euro.

With the new strength in the equity markets Oil has made another move higher. Better growth means higher oil prices…. means lower growth…. means lower oil oh dear. For the moment we are looking at the natural expectation that a return to strength in the send half of ’09/start of ’10 will mean higher oil prices. As mentioned many times in this comment OPEC are looking to get prices back up to $75 but they have been constrained by the high levels of inventories and offshore storage. The failure of prices to drop at the expiry of contracts since March indicates that the glut of inventory is dissipating. In the light of this possibility oil has been grinding its way ever higher. In the current environment it would not be surprising to see a sharp shift to the upside if inventories (due tomorrow) are weaker than expected.

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