Morning folks,
Blimey, what an evening! I found out there was definitely a wrong time to have tea. In that time the US changed from Apocalypse Now to Happy Days, bouncing 10% from the lows. European markets surged in ‘after hours’ trading and commodities benefited as the Dollar lost some of its safe haven appeal. The EuroYen (proxy for risk aversion) rose by 600 points, returning to Wednesday’s level. Technically, equities closed showing a bullish chart pattern.

Yesterday’s blog highlighted the S&P returning to re-test October’s lows (Sterling Continues To Fall). I said that although I thought equities were due an up day I wouldn’t be backing that up with my pension money; sadly I kept to that. One minute I was watching the £££s accumulate as the market fell, an hour later I was waving goodbye to much of the week’s gains.

I’ve been in the business longer than Theo Walcott’s been on this earth, and yet I’ve still got plenty to learn. I still need to learn that even when the market is haemorrhaging and hitting new lows, if I’m short the market and popping down for tea then I should tighten my stop loss, just in case.

And here’s the really sickening bit; I stuck a £1 long bet on the Dow at 8185 then watched it fall a further 200 points. The market then rallied to show a £50 profit when I got the shout for tea. I reckoned the risk was to the downside so sold my Dow long for £50 profit and left my FTSE short on. After a bit of family time I popped up to find the mother of all rallies had all but wiped out the week’s hard-earned gains. Aaaaggghhhh!!!!!!

I don’t know what prompted the squeeze; commentary at the time suggested strong buying of ‘bargain basement’ energy stocks. It might have started as a short squeeze after the market dumped below the previous S&P500 low, then turned into a buying frenzy as technical traders decided this was the start of the next bull run. I don’t believe it had anything to do with today’s G20 meeting; the main man won’t even be there. I did hear talk that China might cut rates by 0.54% today, that’s double their normal measure.

Whatever, equity charts showed great reversal patterns; the S&P 500 touched a new low then rallied to engulf the previous day’s candle. There’s the small matter of still being below the 14 and 21-day moving averages, but these are helpfully started to nose upwards.

The evening rally in FTSE left it with a positive engulfing candle that took the price back above the 14 and 21-day moving averages. Technically this puts the bulls back in the frame with a short term target of around 4550-4600, a combination of the 50-day moving average and a downtrend line.

So, have I filled my boots with bets for the long trip to Profitsville? Well, no. I’ve closed down my shorts; this was painful as it meant waving goodbye to some profits, but I don’t fancy arguing with a strong chart signal. I’ll wait and see how the US reacts to yesterday’s rise but might chance a small long bet then. But, back in the real world very little changed last night. World economies are still in one heck of a mess, company results are coming through worse than expected, and can the markets withstand a General Motors bankruptcy?

European markets didn’t re-test their lows and I still reckon we need a day of real, painful capitulation. But, for now, all these points should probably be on a big piece of paper just above the desk as a reminder to guard those profits on a long position.

Listen out at 10 o’clock to see if the suits from China do cut rates, and watch out for US retail sales at lunch time.

Happy Trading