I do understand why so many spread bettors went into yesterday short of the FTSE. The UK index and various other markets were all already pretty stretched as of early Thursday, and therefore ostensibly ripe for shorting. As I said in yesterday’s Outlook, however, overboughtness should be treated as an amber light, rather than a red one. It should alert us to the fact that a trend may have gone too far, too fast, rather than actually prompting us to head for the exits. The markets subsequently surged even higher, burning those that had made their sell-bets.
What now? The FTSE is now what I’d describe as really overbought on its daily chart. You have to go back to the blithe, pre-credit crunch days of February 2005 to find another occasion where it was this stretched. I am therefore increasingly cautious, but still willing to take small longs after intraday pullbacks. And I will remain so until there are definitive signs of reversal, not just overboughtness.
COMMODITIES OUTLOOK
09.13
The prospective burst higher in EURUSD that I mooted yesterday has come to pass. However, it is not yet feeding through into commodity strength elsewhere as I might have hoped. While Brent’s rally is persisting, I am a bit disappointed with the state of gold and particularly silver right now. The latter are interesting to me on a medium-term view, as I expect inflation to become more of an issue as 2013 progresses and for the metals to benefit in response.
for analysis of some leading commodities & EURUSD.WALL STREET OUTLOOK
13.40
Wall Street is somewhat overbought, but not nearly as much so as our own FTSE 100. The lesson of the post-2009 era is that strong, liquidity-driven rallies – i.e. all of them in that time – can last for much longer than even the bulls expected. I have little doubt that this will give way to another correction, particularly if and when a further attempt to withdraw QE is made. I am not a bull based on economic or company fundamentals. Liquidity is what is driving this market and when the liquidity halts, stocks will come off.
For now, I continue to look for longs in the S&P and Dow. The Nasdaq leaves me cold, I have no real sense of what will happen here. I am, however, heartened that its troubles have not so far stood in the way of the other two indices’ progress.
for analysis of the US indices.Please note that the IC website does not alert me when a comment is left. If you want a guaranteed reply to your comment or query, please write to me at dominic.picarda@ft.com
