It's not at all obvious what's going to pull the markets out of their current decline.
Greece now looks set to go to the polls again next month, against a backdrop of Greek depositors withdrawing their savings from the banks and shrinking economies around much of the Euro area. Barring some major intervention by governments and central banks, the situation looks doomed to worsen in the near term, dragging equities and the single currency down with it.
In this environment, I can only logically contemplate short positions. Yes, the markets are already somewhat oversold, at least on an intraday view. But they are not extremely so, which leaves scope for further downside. I would like to short the FTSE and EURGBP at the end of an intraday bounce.
Click here for analysis of some leading European markets.
The Euro's slide is unrelenting, which has taken it to oversold extremes not witnessed since the crisis of early summer 2010. However, while this raises the prospect of a bounce, I think that this now overdue relief-rally could prove short-lived, merely taking EURUSD back to some of its key daily moving averages, before reversing lower once more. Until we get some evidence of such a move, however, my bias is towards taking small short positions around the end of intraday moves higher. Copper continues to look like a particularly attractive opportunity here.
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Sentiment among US pundits is still optimistic. The gap between bulls and bears according to the latest Investors Intelligence survey was 17.1% in favour of the former. In the shakeout of the last two summers, the reading has plumbed the depths below 0 before massive rallies ensued. However, since my thesis remains that this is a mere correction within a bull market, I do not require hugely bearish sentiment to predominate in order for me to start buying again.
I still seeing the best shorting opportunities as being in Europe, although I’d be willing to do a small trade in either the S&P or Dow today.
Click here for analysis of some leading equity indices.
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Dominic Picarda is a Chartered Market Technician and has co-ordinated the IC's trading coverage since 2006. He is a regular speaker at trading and investment events and also holds the Chartered Financial Analyst qualification.