Just like any good horror movie, last night stockmarkets looked to be in the final throes of the rally, only to rear up again. But is this the final supreme effort or a new lease of life?

Crikey! It’s a month since I last took a detailed look at the stockmarkets in Buy In May? So what happened to markets, and is the picture any clearer now? This piece will take a look at the main stockmarkets and where I think the next move could be; the following article will try and make sense of the main currencies. And I promise not to mention any early stages of plant life.

The Global Economy in 30 seconds
Most data has improved from the cataclysmic fall last year. The odd piece of data, like the UK PMI, has shown a genuine indication of expansion, but on the whole reports are merely ‘less bad’. Housing data remains mixed but in the UK a lack of sellers has led to some price improvement.

Given recent market moves and positive press coverage it’s not surprising that confidence surveys have improved across the spectrum of consumers and industry. There’s barely a whiff of inflation in the air and retail sales remain erratic with, I suspect, a boost in the UK from some fantastic barbecuing weather and lots of ‘buy now, take a year off and pay us when it’s old and broken’ deals. The general reaction has been to dismiss the poor data and cling to the ‘improving numbers’ as a sign that the worst is behind.

But the inescapable fact, no matter how it’s dressed up, is that more and more people are losing their jobs. And when that happens they don’t get paid so they can’t spend as much. If people don’t buy so many goods then companies don’t need to employ as many workers to produce them (keep repeating this paragraph).

How Have The Main Stockmarkets Performed?

Dax
Forget rising unemployment and the biggest drop in industrial production since the Dambusters, performance on the Dax has been phenomenal. The index has put on a further 5.5% since the start of May, as near as damn it 40% from the lows of March, and made a new 2009 high.

If I were to quibble, the index wasn’t comfortable above January’s 5120 high, and, despite an enthusiastic US market, has looked more at home defending the 5000 level.

See how well the 21-day moving average has lent support, keeping the price in the upper channel of the Bollinger band. For me the index is close to dipping below the uptrend channel, but I need to be careful here as this could just be a repeat of the two recent cases where the price rallied from trend support.

The price needs to drop, and close, below its 21-day moving average, currently flattening out at 4950, to get interesting. But there was a lot of action previously in the 4850-4950 area so I reckon it could spend a bit of time there. Below that expect 200-day MAV support at 4800.

The RSI is looking tired, but again, this is similar to the pattern in mid-May-just before the market rallied 400 points.

FTSE
Demonstrating typical British restraint the FTSE lagged its European counterpart, rising 5% since the beginning of May, 27% higher than the low in March.

The index has really struggled above 4500 and has shown little inclination to compete with January’s high of 4680. The RSI is tiring, though still just above 50, and the price has been struggling manfully to stay above its 21-day MAV.

Now this is interesting; I use the 21-day MAV as a trend indicator and the theory runs that a break in the opposite direction isn’t sustainable. Now though, with the use of a magnifying glass, you can see that the 21-day MAV has been declining over the past week. OK, the numbers are negligible, but I’ll be keeping an eye on it.

The other thing that will be adding a tingle to technical analysts is the tightness of the Bollinger bands. This is merely reflecting the lack of volatility in the market, but such a pattern is often followed by an explosive breakout.

I favour a move to the downside (but then I would, wouldn’t I?); but would such a move be explosive enough to take out resolute support at 4300, now strengthened by the presence of the 200-day MAV?

S&P
The land of the free (bailout) has led from the front, putting on nearly 8% since the beginning of May. The index is currently 41% off the low but, like the Dax, looked embarrassed at making a new high for the year. It’s well placed above its 21-day and 200-day moving averages and an undemanding RSI leaves room for a push higher.

However, the last three days have ended in doji candles, signalling a lot of indecision at this level.

What Could Change?
1) I expect the effects of rising unemployment to feed through to lower retail sales, higher mortgage and loan arrears and consequently lower house prices.

2) If much of the improvement in industry has been stocking up on new supplies that ultimately don’t get bought, the next stage will be a reduction in production with a cutback in raw materials and workers.

3) I’m not an equity analyst but from what I see share prices have built in some pretty hefty earnings expectations. This might see a correction during the next reporting season, or we might wake up one day to a bombshell profit warning.

What Am I Looking For?
I think the markets are on the cusp of a big move. The trouble is that I fancy both European markets to head south, but can’t see them do this in a meaningful way if the US market is still tempted (or manipulated) to aim for higher plains.

After a poor close today’s markets have taken a firm bid; the European indices are (at the moment) struggling with the levels mentioned above, but the S&P has pushed ahead to make a fresh high. And this is the risk, that S&P traders set 1000 in their sights and drag other markets (kicking and screaming) with them.

I want to be short; I’m looking to go short, but I’d rather miss the first 200 points to be more certain.