Daily Financial Analysis / Simon Denham / 24 March 2009 / Leave a comment

Daily Comment Tuesday 24th March

Off to the races we go but the markets this morning seem to be almost unbelieving with the FTSE only managing a 15 point move higher having been called around 50 up in pre-market activity.

The UK senior index is now 500 points above the lows of a couple of weeks ago and it must be said that the rally from the base this time looks a bit more stable (famous last words) with the majority of the move being a steady grind rather than quick shifts higher which defined previous dead cat bounces. The nagging worry is that this looks remarkably like the big rally in March/April/May last year but to be honest this culminated in a full 1000 points to the upside by its end so (if this does turn out to be a carbon copy) it is not too concerning just yet.

The FTSE has now broken the three month trend line at approximately 3930 and the next target for the bulls is the medium term resistance at 4075 (but of course there is the psychological 4000 level to breech first). On the plus side the Dax, Dow and S&P have all broken longer term down trends and it must be hoped that the weight of these three will influence the FTSE more than the FTSE will influence them! The recent poor performance of the index versus other world exchanges is slightly surprising given the weakness of the Pound which (given the preponderance of non UK earnings in the 100 index) might give hope that it should be outperforming.

Technically markets hate to open gaps in charts and the action yesterday in the FTSE was a classic example of this. The market opened creating a 30 point gap between the high on Friday and then motored on up to 3925 before sellers took us all the way down to neatly close the aforementioned break at 3850 before (once again) storming up to 3950 at the close.

It is nice to see that my comments of the last few weeks on the apparent value in the banking stocks have been borne out for the time being. Barclay's is now at a high since the January sell off and even Lloyds is doing its best to shrug off the recent disasters. With the huge injections to the toxic debt insurance plan there is a feeling that (given a reasonable wind) we may be seeing the back of the financial crisis. Now all we have to worry about is the economic one!

Sterling seems to be regaining some composure versus the Euro but it might be a tad early to get too excited as we are still well below 1.10 at 1.0795-1.0799. The cross seems to be dominated at the moment by the obvious trading levels 1.10 1.05 and 1.15. Since the turn of the year one or other of these numbers has defined (roughly) the high or low of nearly every move. On this basis we are either heading back up to 1.10 or will reverse to 1.05, with the Euro weakening against other majors just now the probability is slightly shifted in Sterling's favour just at the moment but sentiment in the pound is not exactly what you would call 'solid'.

With renewed hope that the markets have regained composure it is not surprising that Gold had a bad day and Oil another good one. Both of these seem inversely connected to each other as hopes for better growth prospects build on oil price expectations while, at the same time reducing the allure of the yellow metal. A bad day on the markets and this will probably reverse!

Such is the highly technical, quant calculated, MIT influenced, black box formulated trading strategies that we experience at the moment!