Take last week's ripple of excitement over the prospect of further quantitative easing in the US. Chatter was circulating that Ben Bernanke might drop some heavy hints that he was thinking of delivering another round of newly-minted treats to investors. In response, gold began to rally and I got suckered in. The rally then ended abruptly once the bearded helicopter pilot failed to come up with the desired goods, leading to my long position getting stopped out, albeit only for a very small loss.
Gold's fake recovery
A real event then unfurled over last weekend. Europe's bail-out of Spain's banks got me thinking that the equity markets might finally enjoy a sustained rally. Despite a very strong early move higher in the FTSE and other indices on Monday 11 June, the gains were reversed within a few hours. Okay, my buying conditions were never met, so I didn't lose any money on this one. But that only made me more irritated at myself for backing away from my correctly bearish stance at the first very hint of a turnaround.
FTSE rally fizzles
The next big event is now just around the corner, in the form of Sunday's Greek elections. Traders are already talking up the prospect of a big relief rally if the country doesn't vote itself into European oblivion by choosing an anti-austerity government. I am less convinced, however, that such a result will prove to be a 'golden dawn' for European stocks, if you'll pardon the pun. At any rate, I am going to try and resist the temptation to guess either the result - there's been an opinion poll black-out since last weekend - or its impact on the markets. Whatever move follows should offer plenty of trading opportunities over the subsequent days and weeks.
S&P's limp lift-off
Events aside, the main trend in the markets remains solidly downwards for now, in my view. In the six trading sessions since the S&P 500 bottomed on 4 June, we have had just one day of really convincing buying. And there have been only two days where the market has risen consecutively. Although it is possible for a significant recovery to begin with such a whimper, it is not probable. The most likely outcome would be a renewed burst of downside to 1268.
DAX still kaput
The situation looks even less promising on the chart of the DAX. Germany's main index hasn't even enjoyed what I'd classify as one decent day of upside since its recent lows. Even during those sessions where it has pushed significantly higher during the day, it has then sunk back to around where it began the day or even lower. And it failed miserably to close above its 21-day exponential moving average, the first hurdle towards re-establishing itself in an uptrend. Until this weekend's big fat Greek election, therefore, I expect to attempt little more than small short positions on this and other indices.
**Dominic will be presenting at the London Investor Seminar on 18 June - book your place today.**
