Market gains are now a distant memory...

Bets in the City / Simon Denham / 26 November 2008 / Leave a comment

Dail View - 26th November 2008

So we start another morning in the black as Monday's 10% gain is slowly eroded away. Whilst a degree of optimism seems to be creeping back into indices, particularly the US markets ahead of Thanksgiving, each bull back is a sharp reminder that the bulk of investors remain cautious. Confidence wasn't helped yesterday when BHP surprised the market by pulling out of its bid for Rio, causing their shares to tumble nearly 40% - ouch. A wise move in retrospect as BHP's CEO would have had the board's full backing since none of the directors would have wanted to see their share price "do an ABN Amro/RBS". Rio's shares had a little dead cat bounce half way through yesterday and are lower again this morning as the company becomes a direct competitor of BHP once again rather than a partner.

Looking at the FTSE's daily chart this morning any technical analyst would see that a "double bottom" has formed pinning in support around the 3700 level. This formation is considered to signal a turn in the market and so far we've had one but will we rally into Christmas as indices historically tend to do? Thanksgiving is often a bullish time of year for equity markets and in the past it has marked the beginning of the Christmas rally, but as we keep on hearing at the moment "this time is different". Only a couple of weeks ago bulls of US indices were getting excited as the S+P looking like is was forming a double bottom, indicating a rally from around the 850 level, only for dreams to be smashed as the support level was taken out and we saw mass selling driving the market down to 750 - technically not a good sign. On top of this we are going into the festive season against considerable headwinds and one would be forgiven for thinking that Father Christmas is going to stay cooped up in his hut in Lapland this year.

One thing is for certain and that is for all the talk from politicians there is going to be little they can do (short of full and complete nationalisation) for all the big banks to recommence lending to each other is something only they can really achieve once confidence has been fully restored. The formation of this new Lending Panel is similar to a 1920s school headmaster walking around the classroom wielding his cane on petrified pupils. This is hardly the best way to increase the performance of the banks by forcing them to lend to each other.

Sterling had a bonanza of a day yesterday and despite Eurozone activity contracting at its fastest rate in a decade it was dollar weakness that lead to a huge rally with a test of 1.5500 late on in the session. Already we have retraced to 1.5320 (the 23.60% Fib retracement level) and seen a little bounce currently standing around 1.5400. Support is considered to be around 1.5215 and then 1.5127 if we don't take out the recent high of 1.5500.

The dollar weakness of recent days has led to a rally in gold back above $814 much to the benefit of our clients whose love affair with the precious metal does not seem to have ended. With the fundamentals not looking all that rosy for gold at the moment (inflation is falling, the dollar has been recovering and demand from Asian markets is expected to fall) the recent rally has come as rather a surprise. Many commentators have become bearish of gold recently but one cannot underestimate its allure and strength as a safe haven in troubled times.

The Tradefair Spread Betting Team