The FTSE continues to hammer at the high level of the range with 4510 to 4525 seeming to be the crucial resistance area. Clients are not convinced at all and are selling the move in increasing size. While I am also of the opinion that any move higher might be premature this does not detract from the fact that short term traders are too short and are being squeezed by the increasingly powerful flow of investment money pushing us higher.
It would be wise not to be too blinkered by the increasing cacophony of bullish analysts out there. Not one in ten foresaw the bear market (and not one in a hundred saw the systemic weakness of the banking sector) so the odds on them getting the bull move right are probably quite long as well! On the other hand the recent strength in global indices is actually quite surprising given that the very latest slew of data has not been exactly encouraging. One of the sure fire signs of a turn in markets is when commentators start to discount bad data and that is exactly what seems to be occurring at present.
Markets are on the up as mentioned with last night’s late sell off in the US now a distant memory. European markets had a bit of a stormer yesterday with the Dax pushing to new since the start of the year. It is difficult to recall now but the first few days of January were actually filled with hope and the markets were very buoyant. The Dax is now back to the levels of those ‘heady’ days and we will now be looking to see whether we can get back above the highs of 2nd – 7th Jan (although to be fair the FTSE is still a couple of hundred points short). It is tempting to suggest that the next week may well define the medium term trend as any failure to progress to new highs may be taken quite poorly by the market. The obvious resistance for the Dax is at the 5050 level and support from 4475 down to 4460 either of these will probably give a short term helping hand to direction whether in the form of a failure or success to hold.
The Banking sector remains very buoyant with the new levels seemingly not frightening off buyers. It is still very much up in the air as to whether the huge rights issues bought into by the major stake holders, governments and sovereign funds across the globe will restrict the independence of the various banking units and so the potential for disappointment may be growing. At current levels most stock seems to be pricing in a recovery some time later this year, but to sound a small note of warning this is still very much an expectation (I wont use the term ‘hope’) rather than a fact.
Currency markets continue to hammer at resitance levels against the dollar with the pound looking especially fierce around the 1.5525 level. We spent most of yesterdays session trying to break above this point but all to no avail and this morning have already had a couple of bashes as well. A breach would open the cross to the region from 1.55 to 1.67 and although there has been reams of comment dismissing the pound this is leading to a continual flow of weak short destruction driving the price higher!
There is a perception that the US Fed and Treasury are not too unhappy with a weak dollar and while this opinion lasts it would be foolish to bet too much on a rebound in the fortunes of the Greenback.
Oil is yet again having a pop at the 60 buck level (for Brent) but we have the inventories to negotiate this afternoon and traders will probably be flattening positions in advance. The trend is definitely to the upside so it is tempting to suggest that no matter what the short term ‘blip’ in prices after the data release the trend is most likely to reassert itself in time.
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